The government wants to replace the ageing Scimitar scout vehicle

US defence firm General Dynamics has won a contract to build a new light tank for the British army.

The firm, which plans to manufacture most of the new tank in the UK, beat rival bidder BAE Systems - where 500 jobs will now be lost.

The news is a blow for BAE's factory in Newcastle, which was earmarked to build the company's tank.

General Dynamics claims that the contract will safeguard or create 10,500 jobs in the UK.

The contract is reported to be worth £4bn ($6bn).

General Dynamics said its product was not only the best option, but was a patriotic choice too.

"The programme is British to its bootstraps, delivering a military off-the-shelf vehicle with British design by British engineers to the British Army," said Sandy Wilson, president and managing director of General Dynamics.

Welsh secretary Peter Hain said the deal would see 200 new jobs created at the company's plant in Newbridge, south Wales.

A further 250 existing jobs will also be safeguarded at the plant, he said.

The new light tank is designed to replace the Scimitar scout vehicle, providing troops with more protection and firepower.

Jobs blow

BAE had planned to build its contender at its Newcastle plant, protecting or creating 800 jobs in the region.

However following the tank decision 500 job losses, first announced last year, will now go ahead across England.

The firm had hoped to prevent the job losses if the new contract was secured.

The jobs will be lost at BAE sites in Newcastle, Leicester and Telford.

BAE has already announced the closure of its Telford and Leeds sites.

Announcing the tender decision, the Defence Secretary Bob Ainsworth said replacing the older vehicles was "one of the highest equipment priorities for the Army".

He said that General Dynamic's bid had been favoured because it represented "value for money".

He also said that the majority of manufacturing would take place in the UK, ensuring UK skills and capabilities in the armoured vehicle sector were retained.