The European Commission sought on Thursday to boost competition in the EU's vast defence procurement market by limiting use of a special exemption from rules on competitive bidding for contracts.

Eager to avoid abuse of the exemption, the European Union's executive arm tightened the guidelines for when governments could forgo competitive bidding for military contracts on the grounds of "essential security interests".

"This is a first step towards more open and fair markets for defence procurement," EU Industry Commissioner Guenter Verheugen said.

"Creating a European defence equipment market is necessary for the flexibility and competitiveness the defence industry has long been striving for," he added.

With few exceptions, national boundaries still shape the European arms market, although defence ministries have warmed to the idea of more EU-wide competition as they try to get more bang for their buck from strained budgets.

The majority of defence contracts are currently exempt from EU competition regulations and are awarded on the basis of national procurement rules, leaving a wide scope for more competition.

The EU's arms market is potentially huge with combined spending by EU members on defence amounting to 170 billion euros (226 billion dollars), including more than 80 billion euros for procurement in general and 30 billion euros for new equipment in particular.

EU Internal Market Commissioner Charlie McCreevy said that even more needed to be done to ensure tougher competition and that he was preparing the ground for new laws.

"The next step is to propose new legislation that will increase competition, deliver better value for money to taxpayers in the procurement of defence equipment, and give the European defence industry a much-needed boost," he said.

The European Defence Agency, which has been leading efforts to boost competition in Europe's arms market, welcomed the commission's efforts.

"Every initiative that contributes to the breaking down of protectionist barriers in European defence procurement is to be welcomed," said its chief executive Nick Whitney.

"Getting a better market going is vital for the preservation of an internationally competitive defence technological and industrial base," he added.

Europe's arms market entered a new era in July when a first-ever voluntary "code of conduct" aimed at injecting more competition into the arms industry came into force.

The code of conduct will see countries advertise defence procurement opportunities on an electronic bulletin board, which is essentially a secure internet site for privileged users.

Suppliers would then be able to tender for the projects in a more transparent manner, with more "objective" criteria being set for selecting bidders and awarding contracts.