A Pentagon spokeswoman said the withholding would amount to about $300mn not being paid to Halliburton, the oil services company once run by Vice President Dick Cheney that is the US military's biggest contractor in Iraq.

The withheld funds cover meals provided by Halliburton unit Kellogg Brown and Root (KBR) to troops in Kuwait and Iraq.

Inflated billing

Military auditors and Halliburton have been at loggerheads for months over pricing for meals and whether billing should be based on estimates or the actual number of soldiers at the dining table on any given day.

The company agreed earlier this year to withhold $176.5mn in billing for food while KBR prepared a response to issues reported by the Defence Contract Audit Agency.

"This shows that the system is working," said Pentagon comptrollers Dov Zakheim of the decision to partially withhold payment while auditors examined pricing.

Military auditors are looking into whether KBR overcharged for some of its services in Iraq and Kuwait, where its contracts cover tasks from serving hot meals and doing laundry to delivering mails and building bases for US troops.

Price negotiatioins

The Pentagon spokeswoman said "a 15% withholding will be taken on all claims for reimbursement until such time as the final prices are negotiated."

Last week, military auditors said Halliburton had shown "systemic deficiencies" in its cost estimates for billions of dollars of work in Iraq.

Halliburton and its unit KBR hold Iraqi contracts totaling around $18 billion, including one to help the country's oil industry.

Given Halliburton's past ties with Cheney, Washington has been accused by critics of favouring the company.