The new armoured vehicle will replace the existing British Scimitar light tanks.

It will use similar technology to the stealth bomber to make it invisible to radar and other detection systems while it carries out reconnaissance in hostile territory.

The UK's chief of defence procurement, Sir Robert Walmsley said: "New technology will revolutionise the way we gather, organise and use information on the battlefield and in peacekeeping operations."

Rival bids

The Ministry of Defence and the US Department of Defense have awarded two £90m contracts to competing groups to see which can come up with the best vehicle.

The two groups are Sika International, a joint company owned by British Aerospace and US defence group Lockheed Martin, and Lancer, a consortium led by Marconi Electronic Systems.

The successful group stands to win about £6bn worth of orders for the full production of the stealth tank.

British Aerospace and US defence group Lockheed Martin will lead one of the bids

The tank will be designed to operate deep inside enemy lines, gathering information about troop positions, enemy headquarters and other targets.

Stealth technology will make the tank almost invisible to enemy forces, by absorbing rather than reflecting radar beams.

It will be equipped with detection systems for collecting information - including infra-red sensors, microphones, radar and TV cameras - which can then be transmitted back to base using a secure communications link.

The tank will be known in the UK as the Tracer, which stands for Tactical Reconnaissance Armoured Combat Equipment Requirements.

In the US is will be called the FSCS - the Future Scout and Cavalry System.

Boost for British firms

The system will be developed over 42 months, with work split between the US and the UK.

BAe chief executive John Weston said the Sika group would bring together the best technology for the project and was "fully capable of meeting all requirements".

Other firms involved in the Sika bid include General Dynamics, Northrop Grumman, Vickers, Pilkingtons, Shorts Missiles and Smiths Industries.

The Lancer project, led by Marconi, is also being supported by Alvis and two US defence companies United Defense and Raytheon Systems.

Alex Findlay, chairman of the Lancer senior management board, said his group was fully prepared for and totally committed" to the project.

Whichever group wins the final production contract, BAe stands to gain after the company recently announced a deal to buy Marconi Electronic Systems from its current owner GEC.

A government spokesman said: "We have been given satisfactory assurances by the two companies that in the event that the merger goes ahead any necessary arrangements will be put in place to ensure that no conflict of interest will arise."