Locals embracing girl are natives of state (9)

I believe the answer is:

indianans

'natives of state' is the definition.
(people from Indiana)

'locals embracing girl are' is the wordplay.
'locals' becomes 'inns' (I've seen this before).
'embracing' is an insertion indicator.
'girl' becomes 'dian' (**).
'are' becomes 'a' (the 'are' is a metric unit of area).
'dian'+'a'='diana'
'inns' enclosing 'diana' is 'INDIANANS'.

I've seen this clue in The Times.

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