Paris (AFP) - France may have frozen the delivery of the controversial "Mistral-class" helicopter gunship to Russia, but its construction is still ongoing, a well-informed source said on Thursday.

President Francois Hollande announced on Wednesday that the time was not right to deliver the high-end warship to Russia given the situation in Ukraine.

But a source close to the issue said that Hollande's office "explained that the conditions for delivering this ship were not in place at the moment, but there has been no order to stop building them."

Work is ongoing on both Mistral warships Russia has ordered from France.

The DCNS group, which is in charge of building the Mistral, declined to comment when contacted by AFP.

It also declined comment on the penalties France would have to pay by not honouring its contract -- thought to run into billions of euros.

As is usual practice with large-scale defence contracts, Russia has been settling the bill during the construction process and has paid for nearly all the first ship.

Paris agreed in 2011 to build and sell the two advanced helicopter assault ships to Russia for a total of 1.2 billion euros ($1.6 billion), with the first scheduled for delivery in October or November and the second in 2015.

However, under fierce criticism from allies including Britain and the United States, France suspended the delivery of the first of the warships "until November."

French leaders had earlier refused to back down on a sale seen as crucial to a country suffering from stagnant growth and record unemployment, despite widespread condemnation due to Russia's involvement in the Ukraine crisis.

Russia has named the first ship "Vladivostok" and the second "Sevastopol", after the port in Crimea that Moscow annexed from Ukraine in March.

The suspension could have a major impact on jobs at the STX dockyards in Saint-Nazaire, where the ships are being built. Union leaders at the yard said they were stunned by the decision, particularly since the first ship was almost finished.

But there have been precedents for arms deals being scrapped due to international events.

In 1967, then French president Charles De Gaulle cancelled a warship delivery to Israel amid an arms embargo imposed in the wake of the Six Day War.