UPDATE 1-Raytheon wins $925 mln Pentagon contract for missile

WASHINGTON, July 25 (Reuters) - Raytheon Co has won a sole-source contract worth $925 million for continued work on the advanced Standard Missile-3 Block IIA missile, a co-development effort between the United States and Japan, the Pentagon and the company announced on Wednesday.

The Pentagon's Missile Defense Agency announced the contract, which is based on cost-plus-incentive-fee terms. The contract is to run through Feb. 28, 2017.

The Pentagon said the new contract award increased the value of Raytheon's existing contract for the missile to $1.51 billion. It covers development work through critical design review and flight test support.

Raytheon welcomed the news, saying it was working with Japan to develop what it called a next-generation capability for the SM-3 missile, which is already used by the U.S. and Japanese navies to destroy short- to intermediate-range ballistic missiles. It has been used for 21 successful intercepts.

"As the threat continues to evolve, so does our ability to counter that threat," said Taylor Lawrence, president of Raytheon Missile Systems.

The new SM-3 Block IIA missile, the third evolution of the SM-3 family of missiles, will have larger second- and third-stage rocket motors and a larger, more capable kinetic warhead, Raytheon said. It said the missile should be ready for use in 2018.