Analysts said the ambitious bond issue could be part of an attempt by President Cristina Fernandez de Kirchner to rehabilitate Argentina in the international capital markets, where it is rated with caution because of its 2002 sovereign default.
Argentine officials explained the bond issue was to help finance a planned boost to domestic oil and gas production capacity.
In April the government seized Spanish energy giant Repsol's 51 percent stake in YPF, accusing the Madrid parent company of underinvesting in Argentine production and directing its Argentine earnings to oil and gas resources in other world locations. Repsol denied the charge but in May Fernandez went ahead and pushed legislation confirming the takeover.
The bond issue will substitute for funds that Repsol should have invested in YPF but didn't, says the government line on the competing versions of YPF operations before its seizure. Analysts said the bond issue could still be challenged by Repsol and might prove unattractive to investors.
The Spanish company has challenged Argentina over the takeover and has indicated it is considering legal action. EU disapproval of Argentina's nationalization has discouraged European investors.
Chinese investment could still save the day for Argentina's YPF bond issue, analysts said.
"The board of directors of YPF, at their August 10 meeting, approved the issuance of negotiable obligations up to 3.5 billion pesos," a letter from the Argentine-controlled company to stock market regulators in Buenos Aires said.
Argentina says YPF under state control will invest $7 billion a year to boost exploration and production and gain self-sufficiency and cut back on fuel imports. It did not say how it will raise the cash.
Last week the company opened a diesel fuel refinery near La Plata, capital of the Buenos Aires province.
Argentina says YPF is moving rapidly into profitability since nationalization. Its second-quarter net profit rose to $181 million, an 8 percent increase.
Independent verification of the statistics has been hard to come by because non-partisan business analysis firms in the capital have been silenced during a government campaign against any data that challenges its version of performance figures for both the national economy and nationalized firms.
YPF's figures for fuel imports for the early part of 2012 dropped significantly. After the state takeover in April those figures rose sharply and the June imports indicated record high fuel imports that cost $190 million. Seen against June 2011 imports under Repsol's administration, that figure represents a 21 percent increase, made up of gasoline, gas oil and gas.
The company's own refining capacity was used 100 percent against 83 percent in the past, YPF said. Industry analysts said the figures couldn't be independently verified.