DETROIT—The U.S. Department of Energy has loaned $730 million to the North American arm of one of Russias largest steel companies to modernize its Detroit-area plant.

The U.S. government and Severstal North America will upgrade facilities in Dearborn, Mich. that makes flat-rolled steel products for the automotive industry.

The project will employ around 2,500 construction workers and create 260 factory jobs.

The money comes from a $25-billion low-interest loan program created in 2007 to help car companies retool older factories to build green cars.

The company’s Dearborn plant has an annual capacity of 3.3 million tons but upgrades will increase output by 2.1 million tons.

Severstal North America’s parent company, Russia-based Severstal reported revenues of $13.6 billion in 2010 and employs 84,000 people worldwide.