Vice President Ramon Carrizalez announced the move on state radio Wednesday morning, noting the nationalization comes after months of difficult negotiations between the steel maker Sidor and its workers, who have been demanding better salaries and benefits.
Carrizalez, who held talks with union and company representatives early Wednesday, said Chavez did not want to permit the labor conflict to continue. The government tried to help reach an agreement but the company "didn't give in," Carrizalez said, according to the state-run Bolivarian News Agency.
"They wanted the government's support for the brutal system they used in that company, and of course this is a government that supports the workers," Carrizalez said.
He said one option would be for the government to take about 60 percent of the company, with the company's owners keeping a minority share.
Carlos Becerra, a leader of the Unified Union of Steel Industry Workers, told The Associated Press that Carrizalez informed the union and company representatives that the government will immediately nationalize Sidor.
Sidor's parent company, Luxembourg-based Ternium SA, is controlled by Argentine-Italian conglomerate Techint Group.
The company - whose formal name is Siderurgica del Orinoco - was privatized in 1998.
Workers have held protests at Sidor's steel plans in the eastern state of Bolivar, at times clashing with police.
Chavez on Sunday said he had instructed Carrizalez to meet with union leaders to discuss the situation. Chavez said the government "has to demand with great firmness that any company ... comply with Venezuelan laws."
The nationalization of key industries has been a centerpiece of Chavez's socialist agenda in the past two years. The government took majority control of telecommunications and electricity companies last year, along with Venezuela's last remaining privately run oil projects.
Chavez also announced plans to nationalize major cement companies last week, and his government is now in talks on the terms with Mexico's Cemex SAB, France's Lafarge SA and Switzerland's Holcim Ltd.
Venezuela plans to assume at least 60 percent ownership in the cement businesses, and has said the foreign companies will have the option of staying on as minority partners.
Becerra said union and company representatives were present at a meeting early Wednesday where Carrizalez announced the government's stance on the steel maker.
Another union leader, Nerio Fuentes, told the Venezuelan television station Globovision that company workers "have taken possession" of the steel maker's facilities.
Ternium's shares on the New York Stock Exchange were down more than 9 percent after the news in early trading.
Ternium owns 60 percent of Sidor, while the Venezuelan government holds 20 percent and the remainder is in the hands of current and former employees.
Last year, Chavez warned Sidor's owners that he might nationalize the steel maker,