WASHINGTON (AP) - The Pentagon will re-compete a $35 billion contract to build the Air Force's fleet of new refueling tankers and pick a new winner by the end of the year, US lawmakers said yesterday.

Reps. Todd Tiahrt, a Kansas Republican, and Norm Dicks, a Washington Democrat, said the Office of the Secretary of Defence - not the Air Force - will oversee the competition between Boeing Co. and a team led by Northrop Grumman Corp.

The plan, which hands control to the Pentagon's top acquisition chief and sets up a dedicated source-selection committee, indicates that senior civilians at the Defence Department have lost confidence in the Air Force's ability to manage the contract.

"I think it's better," Mr. Dicks said. "No one has any faith in the Air Force."

The Government Accountability Office last month detailed "significant errors" the Air Force made in the original award to Northrop and Airbus parent European Aeronautic Defence and Space Co. The GAO said Boeing might have won the contract had the service not made mistakes in evaluating the bids.

Sen. Richard Shelby, a Republican from Alabama, where the Northrop Grumman team would assemble its plane, said the Pentagon will conduct a limited rebid that looks only at seven issues where government auditors found problems in the initial process.

Sen. Shelby called it "the best of all options" that would address the "minor procedural flaws" the GAO cited.

Defence Secretary Robert Gates is expected to provide further details at press conference yesterday afternoon.

The Air Force in February selected the Northrop team to replace 179 Eisenhower-era aerial refueling planes. Boeing filed its protest in March. Defence Department officials told Mr. Tiahrt a new request for proposals will be issued by early August.

The deal is the first of three contracts worth up to $100 billion to replace nearly 600 refueling tankers over the next 30 years.

The tanker contract has touched off a heated debate over the military's use of foreign contractors because the Northrop tanker would be based on an Airbus plane largely built in Europe. Backed by union officials representing Boeing workers and "Buy-American" proponents, Boeing supporters on Capitol Hill have painted the competition as a fight between an American company and its European rival.