BANGKOK, May 22 (Reuters) - Thailand's military-appointed cabinet approved on Tuesday a plan to build a $42.5 million vaccine plant that can produce up to 10 million doses of flu vaccine a year, the government said.

"The government has agreed with the plan because it is an urgent matter," spokesman Nattawat Sutthiyothin told reporters.

The plant, which will have an initial annual production of 2 million doses, would reduce the cost of flu vaccination and help Thailand fight a bird flu pandemic if one occured, the Health Ministry said in a statement.

The new plant would develop bird flu vaccines using strains from Indonesia and Vietnam, the two countries hardest hit by the H5N1 virus which resurfaced in Asia in late 2003.

The World Health Organisation (WHO) has provided a $2 million grant for the project, which will use Chinese technology and be built by the Thai state drug producer, the Government Pharmaceutical Organisation (GPO).

The grant is one of six similar projects the WHO, United States and Japan are funding in developing countries, the WHO said on its website www.who.int/immunization/en/.

At least 10 percent of the doses would be reserved for purchase by U.N. agencies for use in developing countries during a pandemic, the WHO said.

The state-owned China National Biotechnology Group has agreed verbally to supply the technology for making vaccines to Thailand, GPO acting chief Wanchai Subhachaturas told Reuters.

The H5N1 bird flu virus has killed 185 people, mainly in Southeast Asia, since it re-emerged in 2003. It is mainly an animal disease, but scientists fear it could kill millions if it mutates into a form easily spread between humans.

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