KUALA LUMPUR  - Mubadala Petroleum and partners Petronas and Royal Dutch Shell will spend more than $1 billion to develop Malaysia's Pegaga gas field, aiming to produce gas by the third quarter of 2021, Abu Dhabi-based Mubadala said on Wednesday.

The project in Block SK320, located in the Central Luconia province, offshore Sarawak, will now proceed to the construction and installation stage, the company said in a statement.

Mubadala is the operator of the block with a 55 percent share while Petronas Carigali holds a 25 percent interest and Sarawak Shell holds 20 percent.

"The Pegaga gas project is Mubadala Petroleum's first development in Malaysia and represents an important milestone for us," Mubadala Petroleum's Chief Executive Bakheet Al Katheeri said.

The company plans to build an Integrated Central Processing Platform (ICPP) consisting of an 8-legged jacket designed for gas throughput of 550 million standard cubic feet of gas per day plus condensate in water depth of about 108 metres, Mubadala said.

The output will be sent through a new 38 inch subsea pipeline tying in to an existing offshore network and subsequently to the onshore Malaysia LNG plant in Bintulu, the company said.

(Reporting by Florence Tan, Emily Chow and A. Ananthalakshmi; Editing by Christian Schmollinger and Richard Pullin) ((Florence.Tan@thomsonreuters.com; +65 6870 3497; Reuters Messaging: florence.tan.thomsonreuters.com@reuters.net))