NEW DELHI (Reuters) - India on Tuesday deferred a decision on a deal to buy 197 light-utility helicopters pending completion of an investigation into kickback allegations, the latest setback to efforts to upgrade the country's ageing arsenal.

A previous tender to buy 197 helicopters for the army for US$550 million (S$682 million) collapsed in 2007 after claims of irregularities in the field trials.

Indian defence deals have drawn heavy scrutiny in recent weeks after Italian police arrested the head of defence group Finmeccanica over allegations that subsidiary AgustaWestland paid bribes to win a US$750 million deal to supply 12 luxury helicopters for political VIPs.

While looking into the Finmeccanica deal, Italian investigators said, they found papers suggesting a serving Indian army brigadier offered to help AgustaWestland win the contract for the 197 helicopters in return for a US$5 million bribe. It is not clear if bribes were indeed paid.

"The 197 helicopters did not come up for discussions today because the army would like to see that there is an enquiry into some of the allegations made against one of its officers," defence ministry spokesman Sitanshu Kar told reporters.

AgustaWestland did not make the short list in the tender.

Eurocopter, a unit of aerospace and defence company EADS, and Russian Kamov are competing for the deal.

India plans to spend US$100 billion upgrading its creaking military hardware over the next decade to match its growing economic clout and keep up with neighbours China and Pakistan as they modernize their own defence capacities.

India has emerged as the world's top arms importer, but deal after deal has been held up by graft claims and a tortuous procurement process.

The acquisition of the light reconnaissance helicopters has a troubled history. The government scrapped an earlier tender process, widely expected to go to Eurocopter's Fennec in 2007, because of allegations of unfair field trials.

India is considering whether to blacklist AgustaWestland over the VIP deal. It placed six defence companies on a blacklist last year because of corruption allegations.

These included Rheinmetall Air Defence, part of Germany's Rheinmetall AG, Israel Military Industries and Singapore Technologies Kinetics, which have been barred from doing business in India for 10 years.