The 20-year plan sets out how the UK will safeguard supply chains for the technology and protect it against national security risks.
The investment, which will be spread over the next decade and includes up to £200m over the next two years, should improve access to infrastructure, power more research and development, and facilitate greater international cooperation for firms in the sector.
It will look at whether better access to prototyping facilities for chip firms is needed to tackle barriers to innovation and grow the industry. It will also explore opportunities to make specialist software tools more available for start-ups.
It comes as Prime Minister Rishi Sunak visits the G7 leaders' Summit in Japan for discussions on strengthening technology ties with the country.
Over a trillion semiconductors are manufactured each year, and the global semiconductor market is forecast to reach $1tn by 2030. They will underpin future technologies, such as artificial intelligence, quantum and 6G.
The funds come amid rising tensions between Britain and its Western allies and China. Concerns are increasingly focused on the reliance the West has on China for manufacturing the vast majority of its computer technology.
The surge in demand for consumer electronics during the pandemic demonstrated how global industries can be impacted by semiconductor supply issues. The sector started to recover last summer as the global chip shortage began to ease, but US officials have warned that it is likely to continue to some degree through the rest of 2023.
"Our new strategy focuses our efforts on where our strengths lie, in areas like research and design, so we can build our competitive edge on the global stage," Sunak said.
"By increasing the capabilities and resilience of our world-leading semiconductor industry, we will grow our economy, create new jobs and stay at the forefront of new technological breakthroughs."
The emphasis of the new strategy is on design and research, rather than manufacturing the semiconductors themselves. However, further plans to support investment in the chip manufacturing sector are expected by the autumn.
Science secretary Chloe Smith said: "Britain is already a world leader when it comes to researching and designing semiconductor technology – our new strategy will double down on these core strengths to create more skilled jobs, grow our economy, boost our national security and cement the UK's status as a global science and technology superpower."
During Sunak's visit, the UK and Japan committed to establishing a semiconductor partnership including a joint investment of up to £2m in early-stage semiconductor research next year.
The government said it would take steps to help sectors mitigate the impact of supply shortages in the future. It also wants to protect critical sectors (essential services, healthcare, critical national infrastructure and defence) from disruptions that could cause risks to life, or national security.
Rene Haas, CEO of Arm, said: "Arm welcomes the UK government's new semiconductor strategy, which will support the UK's effort to play a part in global supply chains for next-generation technology. The UK is a significant hub of innovation and talent both for Arm and the wider industry and we look forward to working with the government and other partners to help make this a reality."
Scott White, a founder at Pragmatic Semiconductor, one of the largest semiconductor manufacturers in the UK, said: "There still are some question marks raised over the strategy when looking at the funding allocation. There needs to be further clarity around exactly what the £1bn will be applied to, as well as how and when it will be applied.
"When you look at the areas the UK is focused on there is a valid question to be asked over whether that's enough money to make a difference – is it too much of a dilution to spread the amount over 10 years?
"That can only be answered with more detail. Ultimately, you could invest £100m annually into something that really moves the needle for the industry. You could equally waste £1bn in a year by focusing it on areas that won't have an impact."
