Israel Aerospace Industries was planning to develop a new model of the Swedish-made Gripen fighter jet with its manufacturer, Saab, to compete in a tender to sell the planes to India's armed forces, the Jerusalem Post said.
But the state-owned firm backed out on the orders of the Israeli defence ministry "after the Pentagon expressed concern that American technology, used byIsrael, would be integrated into the Gripen," the newspaper said.
It said Washington had likely pressured its close ally because two major US aircraft manufacturers -- Boeing and Lockheed Martin -- are also participating in the tender for more than 120 aircraft estimated at 12 billion dollars (8.5 billion euros) .
"This is not the first time that the defence ministry forced a local company out of a deal due to concerns that competition with American companies would cause friction with the United States," it said.
In 2008, the defence ministry ordered Israel Military Industries not to submit a bid for a 500 million-dollar deal for the manufacture of a new tank for Turkey because it would have been in competition with US firms, it said.
Israel replaced France in 2007 as India's second-largest arms supplier after Russia and could grab the number one slot through a vast array of defence agreements already signed with New Delhi.
In May, India took delivery of its first Airborne Warning and Control System (AWACS) plane as part of a deal with Israel worth more than one billion dollars.