UPDATE 1-U.S. to stop funding NATO missile defense program

* Pentagon says program would need up to $1.6 billion more

* Program unaffordable in current budget climate

* Lockheed insists program met milestones (Adds details throughout)

WASHINGTON, Feb 14 (Reuters) - The United States on Monday said it would stop funding a multibillion-dollar U.S.-European missile defense program known as MEADS after fiscal year 2013, calling it unaffordable in the current budget climate.

"Our partners may go forward with some MEADS, but it is not our plan to do so," the Pentagon's comptroller Robert Hale told a budget briefing. He was referring to Italy and Germany.

Lockheed Martin Corp (LMT.N)leads an international consortium developing the Medium Extended Air Defense System, or MEADS, in partnership with Italy and Germany.

The Pentagon said it remained concerned about the overall track record of the program and might ordinarily have canceled it. But Hale noted that continuing development of the program until 2013 would avoid costly termination fees and benefit the partner nations on the program.

A Pentagon fact sheet said the program had experienced a number of technical and management challenges since its start in the mid-1990s. It said that although the program had shown marked improvement in recent years, it had been unable to meet schedule and cost targets.

It said a recent restructuring proposal would have extended the design and development phase by some 30 months, requiring at least $974 million in additional U.S. investment from fiscal year 2012 through 2017, and possibly as much as $1.6 billion.

Washington said it had decided to continue the program's development up to a cost ceiling of $4 billion to ensure development of a meaningful capability for Germany and Italy, and possible future option for the United States.

The department said it had already spent $1.5 billion on the program to date, and was already committed to funding an additional $804 million.

Continuing the program would cost nearly $1 billion, or more, but the Army could not use MEADS to replace its Patriot missiles given delays in the MEADS program.

Lockheed insisted the program had met all major milestones since it officially began in September 2004, completing a critical design review and system program review.

The first MEADS battle manager and launcher had moved to a test range in Italy for system tests, Lockheed spokeswoman Cheryl Amerine said in a statement.

She said MEADS could defend up to 8 times the area of current systems with fewer system elements at a cost lower than upgrading existing systems. (Reporting by Phillip Stewart and Andrea Shalal-Esa)