UPDATE 2-Japan's Tokuyama to invest $670 mln in Malaysia plant

* Doubles polysilicon capacity at plant vs original plan

* To spend 30 pct more on Malaysia plant than original plan

* Could fuel oversupply fear

* Shares close up 2.9 pct vs Nikkei's 0.6 pct rise (Adds background)

TOKYO, Aug 11 (Reuters) - Tokuyama Corp (4043.T), Japan's biggest polysilicon maker, will invest 65 billion yen ($673 million) in a planned plant in Malaysia to boost its polysilicon production capacity by 75 percent and meet demand from solar cell makers.

Tokuyama, which trails U.S. firm Hemlock Semiconductor Corp and Wacker Chemie (WCHG.DE) in polycrystalline silicon, will launch the new plant in spring 2013 with annual production capacity of 6,000 tonnes -- double the original plan announced last year.

Tokuyama has taken a wait-and-see approach in solar-grade polysilicon capacity and has fallen behind in a race with Hemlock, nearly two-thirds owned by Dow Corning Corp [DOWCR.UL] and Wacker (WCHG.DE), while new Chinese entrants close in.

Home rivals Osaka Titanium Technologies and Mitsubishi Materials (5711.T) have also announced expansion plans, and Tokuyama's planned factory could come online just in time to fuel oversupply, analysts have said.

Prices of solar-grade polysilicon -- which compares with higher grade polysilicon used in semiconductors -- are now a quarter of what they were last year, as solar makers such as China's LDK Solar (LDK.N) and Taiwan's Top Green Energy build new polysilicon plants.

Tokuyama, which supplies the key ingredient to wafer makers including Sumco Corp (3436.T), Renewable Energy Corp (REC.OL) and MEMC Electronic Materials (WFR.N), had previously said it would invest 50 billion yen in the plant, to be built in Sarawak, east Malaysia.

The new plant would lift Tokuyama's polysilicon production capacity from 8,200 tonnes per year.

Tokuyama also supplies polysilicon to Japan's solar makers Sharp Corp (6753.T) Sanyo Electric 6764.T Kyocera Corp (6971.T) and Mitsubishi Electric Corp (6503.T).

Its shares closed up 2.9 percent at 736 yen ahead of the announcement, outperforming the benchmark Nikkei average .N225, which closed up 0.6 percent. ($1=96.63 Yen) (Reporting by Mayumi Negishi; Editing by Michael Watson and Joseph Radford)