India has rejected a bid by France's Dassault Aviation SA (12172.FR) for a fighter jet contract valued at an estimated $10 billion, a senior defense ministry official said Thursday.

Dassault had offered to sell its Rafale fighter jet to the Indian Air Force that is looking to buy 126 combat jets.

"We have canceled their bid," the official, who didn't want to be named, told Dow Jones Newswires. "They are out of the race."

The Rafale was in competition with Boeing's F/A-18, Lockheed Martin's F-16 Falcon, MIG-35 of Russian Aircraft Corp.'s MiG, Saab AB's (SAAB-B.SK) JAS-39 Gripen and the Eurofighter GmbH's Typhoon.

The six companies, including Dassault, had placed their bids in April last year.

India plans to buy the combat jets to modernize its mainly Soviet-vintage defense forces over the next decade. The Indian Air Force has 1,700 aircraft, including helicopters and transport planes, according to its Web site.

"There were some shortcomings (in the Dassault bid)," the official said. "The other contenders are still in the race," the official said, without elaborating.

E-mails and phone calls to Dassault Aviation executives remained unanswered.

India is among the world's top arms importers and is likely to issue contracts valued at as much as $60 billion by 2015 for equipment and systems that also include artillery, submarines, warships and midair refueling tanker-aircraft, according to analysts.

 
   -By Nitin Luthra, Dow Jones Newswires; +91-11-4356-3306; nitin.luthra@dowjones.com