South Korea on Monday selected Korea Aerospace Industries and partner Lockheed Martin for a multi-billion-dollar contract to develop 120 "indigenous" fighter jets to replace Seoul's aging fleet.

The bid from KAI and the US aerospace giant, which is subject to a screening process before being officially approved, was always seen as the favorite for the 8.6 trillion won ($7.8 billion) deal over a rival bid by civilian carrier Korean Air teamed with Airbus.

The Defense Ministry also approved a separate $1.28 billion deal to buy Patriot PAC-3 missiles and upgrade its air defense system aimed at intercepting North Korean ballistic missiles.

The KF-X fighter project is designed to develop and produce 120 fighter jets of a new, indigenous type to replace South Korea's aging fleet of F-4s and F-5s.

"We have chosen KAI as the preferred bidder based on our review of ... cost, development plans and development capabilities of the two bidders," the Defense Acquisition Program Administration said in a statement.

"We are planning to sign the (final) contract during the first half of this year after negotiating with the preferred bidder over technology ... and the price," it said.

The South Korean government is to provide 60 percent of the development costs, with the rest to be shared by the winning consortium and Indonesia, whose involvement is the result of a bilateral defense treaty.

The KAI-Lockheed alliance always had the upper hand, as the same partnership developed the T-50 trainer, which is South Korea's first homegrown supersonic aircraft.

Lockheed, which won a contract in 2013 to sell 40 F-35A joint strike fighters to South Korea, has promised to transfer key technologies for the KF-X project to Seoul.

South Korea has traditionally favored importing fighter jets and other weapons from the US, which stations about 28,500 troops in the South as deterrence against potential aggression from North Korea.

The Korean Peninsula remains in a technical state of war because the 1950-53 Korean War ended with an armistice, not a peace treaty.

Korean Air had talked up its bid by highlighting the technical support available from Airbus, which is part of the European consortium that developed the Eurofighter.

Airbus has made a number of bids for the South's military contracts, including a $1.38 billion deal to provide air refueling tankers.

The defense ministry's request for the KF-X project required a new design, although experts say a heavily modified version of an existing fighter model would also be acceptable.

DAPA officials said South Korea would also buy an unspecified number of "hit-and-kill" PAC-3 missiles from Lockheed Martin by 2020 to improve its anti-ballistic missile capabilities.

US defense contractor Raytheon has been selected to upgrade South Korea's PAC-2 fire control system to launch both PAC-2 and PAC-3 missiles, DAPA spokesman Kim Si-Cheol told reporters.

AFP - AP

South Korean marine amphibious assault vehicles fire smoke shells to land on the seashore during a joint landing operation by US and South Korean marines in the southeastern port of Pohang on Monday. Jung Yeonje / AFP