LONDON, Aug 13 (Reuters) - Science and engineering undergraduates should be paid a 1,000 pound a year grant to help reverse a decline in the numbers studying the subjects, business leaders said on Monday.

The Confederation of British Industry said the bursaries would cost the government 200 million pounds but were needed to address a looming shortage of graduates with science skills.

The number of students taking physics A-level has fallen by 57 percent since 1984, while chemistry has dropped by 28 percent.

That has had a knock-on effect at university, where the proportion of graduates in the two subjects fell by a quarter between 1994 and 2006.

The CBI said science and engineering firms were already struggling to fill posts, with four out of five engineering and industrial firms telling a survey last year they were concerned about their ability to recruit enough graduates.

Graham Love, chief executive of defence and security technology firm Qinetiq, said five years ago his company had 75 applicants for each graduate-entry job.

This year they had just 30 for the 150 posts on offer.

"Concerns about future skill levels resonate across the defence and aerospace sector," Love said.

The number of students obtaining degrees in science subjects has risen by a half since 1994, but much of the increase is due to undergraduates studying biological sciences and computing.

Former niche subjects such as sports science have also seen a boom in interest, attracting more than 22,000 students in 2005.

"The UK cannot compete with the developing world on low-skilled jobs, so to thrive in the global market we must excel in the high-skilled roles that demand expertise and innovation," said CBI Director General Richard Lambert.

The CBI also wants more specialist science teachers in schools, better-equipped science labs, and the brightest 40 percent of 14-year-olds automatically opted in to take three separate science GCSEs in physics, chemistry and biology.

It said 120 million pounds of extra funding should also be spent on one-to-one schools careers advice to challenge "misconceptions" about science and engineering degrees.

The CBI said together with the 1,000 pound university bursary these measures could increase to 25 percent the proportion of A-level students taking at least two sciences or a science with maths.

Higher Education Minister Bill Rammell said the government already had "ambitious targets" for science teacher numbers and A-level entries.

"The government's ambition is to create an education and training environment that delivers the best in science teaching and learning at every stage," he said.

Is this article useful to you?