WASHINGTON, May 13 (Reuters) - Polar Semiconductor is set to receive a $120 million U.S. government grant to expand its plant in Minnesota, which will allow the company to double its U.S. production capacity of sensor and power chips within two years.

The award, part of the Biden administration's $52.7 billion semiconductor manufacturing and research subsidy program, follows an agreement by Polar's current owners to sell down their stakes to U.S. private equity firms so that the company can become majority U.S.-owned.

The Commerce Department, which made the grant, noted shortages of power and sensor chips were a key issue during the COVID-19 pandemic, disrupting many sectors.

Under Secretary of Commerce Laurie Locascio said Polar's "technology plays a critical role in high-voltage applications across the aerospace, automotive, and defense sectors and this proposed investment would enable new capabilities to manufacture the next generation of semiconductors."

The state of Minnesota is also contributing $75 million to the $525 million project.

Polar is currently 70% owned by Sanken Electric and 30% held by Allegro MicroSystems.

Last month Sanken said that Niobrara Capital and Prysm Capital plan to invest $175 million for around 59% of Polar. Sanken's holding will drop to around 30% and Allegro's stake will fall to around 10%.

The Biden administration has announced seven other planned awards including up to $6.4 billion in grants to South Korea's Samsung to expand chip production in central Texas.

Intel won $8.5 billion in grants in March while Taiwan's TSMC clinched $6.6 billion last month to build out its American production. The Commerce Department also said last month it plans to award memory chip maker Micron Technology $6.1 billion to help fund domestic chip factory projects. More awards are expected this year.

All the awards have yet to be finalized and amounts could change after the Commerce Department conducts due diligence. (Reporting by David Shepardson; Editing by Edwina Gibbs)