Lockheed wins U.S. approval to upgrade fighter jets for S. Korea

(Recasts with approval; adds details on approval, background on canceled deal with BAE )

WASHINGTON, July 15 (Reuters) - The U.S. government on Wednesday said it had approved Lockheed Martin Corp to upgrade 134 U.S.-made F-16 jet fighters for South Korea with new mission computers, radars and other equipment in a deal worth an estimated $2.5 billion.

South Korea initially chose the U.S. unit of Britain's BAE Systems Plc to do the upgrades, but canceled the deal in November 2014 after a spike in the projected $1.7 billion cost.

The Pentagon's Defense Security Cooperation Agency said the State Department had notified Congress on Tuesday that it had approved the potential foreign military sale to South Korea with Lockheed and Northrop Grumman Corp as key contractors.

Lawmakers now have 30 days to block the possible sale, although such action is rare.

South Korea is looking to upgrade 134 Lockheed-built F-16 fighter jets to include modular mission computers, scanned array radar, friend or foe identification systems, navigation systems and radar warning systems, among other items, the agency said.

Seoul also has asked to purchase a number of precision weapons, including laser-guided bombs and bomb tail kits. It also is seeking training weapons, and U.S. government and contractor technical support.

BAE Systems (LSE: BA.L - news) and South Korea remain locked in a legal battle over Seoul's decision to cancel its earlier contract with BAE.

Seoul has sued BAE in South Korean court to collect $43 million involved in a bid guarantee on the program.

BAE, in a lawsuit filed in the United States, has said it does not believe it owes Seoul any money for the canceled upgrade program. Company executives say the "bid bond" was never paid since the terms of the initial contract were changed to be a foreign military sale negotiated among the governments. (Reporting by David Alexander and Andrea Shalal; Editing by Christian Plumb and Leslie Adler)