The Republic has lost out to Hungary on a project involving 1,000 "high quality" jobs, IDA Ireland has confirmed.

The multimillion pound investment by a quoted US technology company was scooped at the last minute by the Eastern European state and aspirant EU member, said officials.

"We thought we had secured it, but we lost it," said an IDA Ireland spokesman last night.

Both the Government and the IDA are very concerned at the loss of the project in recent weeks as it was the first occasion on which Ireland has lost out to Eastern Europe for US investment involving skilled jobs.

Projects involving unskilled jobs have been lost in the past, but this was in keeping with the IDA policy of trying to attract more skilled jobs.

"It was a bit of shock to the system," said a Government source last night.

IDA Ireland refused to divulge the name of the US company as there has not yet been an official announcement that Hungary has got the project.

IDA Ireland had been trying to persuade the US group to set up in one of the larger towns in the Border, Midlands and Western region.

The project would have been engineering-based but with a significant technology component.

Sligo was being considered and winning the project would have been a significant coup for IDA Ireland, which has succeeded in attracting investment to a number of large regional towns this year.

On Monday, the Tanaiste, Ms Harney, announced that Cardinal Health, the US drug distributor, would set up in Longford, bringing 1,300 jobs to the town.

Last month it was announced that Teradyne, the interconnection systems manufacturer, was to invest £50 million (#63.5 million) in Cavan creating 740 jobs. It is understood that Hungary won out over Ireland because of the lower labour costs in the former communist state.

Government sources said yesterday that loss of the project justified the Government's determination not to concede on tax harmonisation proposals at the Nice summit last weekend. Ireland, along with Britain, succeeded in having all references to subjecting taxation policy to qualified majority voting removed from the treaty agreed by EU leaders meeting in the French resort over the weekend.

Ireland's low corporation taxation regime - 10 per cent for manufacturing companies in certain sectors - is already an important tool in attracting foreign direct investment to Ireland.

As manufacturing costs spiral in the face of a growing labour shortage, such tax advantages will become critical, according to the IDA. "It was very close. The project was lost through a combination of labour cost issues and competition from other sites," said a source last night.

It is understood that the US corporation is not Cisco Systems, which is known to be considering a massive investment in Ireland with the potential to create 3,000 jobs.

Infrastructure problems are also understood to have played a part in the US company's decision to set up in Hungary.

The decision will cast doubt over the wisdom of the Government's policy of instructing the IDA to concentrate on bringing new projects to the larger regional towns rather urban centres with the infrastructure to cope with them. "We are going to continue to lose jobs if we insist on pushing places that are unsuitable," said one source last night.

The loss of the project will put pressure on the Government to speed up the development of the National Spatial Strategy that will identify a number of towns to become regional centres under the National Development Plan.