A $139 million contract for the upgrade by BAE Systems of South Korean F-16 fighters has been canceled at the request of the Korean government.

The U.S. Defense Security Cooperation Agency in making the announcement said it has notified BAE Systems Technology Solutions & Service of the action and will work with the company to close out the contract, which was made last May.

No reason was given for the action but recent South Korean news reports said Seoul was unhappy over an apparent rise in the cost of the Phase 1 avionics upgrade of 134 F-16s flown by the Korean Air Force.

The Pentagon informed BAE Systems of the cancellation since the contract with Korea came through the U.S. Foreign Military Sales program run by DSCA.

Reports of Korea's dissatisfaction with the upgrade deal with BAE Systems surfaced last month. The Korea Times reported the government was considering a lawsuit against the company "for its failure to implement a KF-16 upgrade at an already agreed upon price."

"We are reviewing the legal details," it quoted the country's Defense Acquisition Program Administration. "If we conclude its demand for additional funds for the contract is a breach of that contract, we could confiscate its bid bond."

At a National Assembly audit, DAPA chief Lee Yong-geol had said a "legal review is currently being conducted regarding the possible cancelation of the deal," the newspaper reported.

Korea had chosen BAE Systems over Lockheed Martin to perform the upgrade because of cost. The Korea Times quotes procurement sources as saying the government could go back to Lockheed.

"Lockheed Martin recently lowered its offer from when it lost the bid," the source said. "If Lockheed can actually implement the upgrade on the given budget, there is no need to reject it."