* Coalition split on replacing nuclear-armed submarines
* Order with Rolls-Royce for two nuclear propulsion reactors
* Contract includes 11-year factory refit
By Tim Castle
LONDON, June 17 (Reuters) - Britain will order the first reactor for a new generation of nuclear-armed submarines next week as part of a 1 billion pound ($1.6 billion) contract with Rolls-Royce, a defence ministry source said on Sunday, in a move that could strain the coalition government.
The deal, including an 11-year refit of Britain’s sole submarine propulsion reactor factory at Derby in central England, would protect 300 Rolls-Royce jobs and many others at suppliers elsewhere, the source said. It is expected to be announced by Defence Secretary Philip Hammond on Monday.
The two-party coalition government is split over plans to replace, at an estimated cost of 25 billion pounds, Britain’s four nuclear Vanguard submarines when they retire from service in the 2020s.
Prime Minister David Cameron’s Conservative Party wants a new fleet of submarines that will continue to carry the Vanguard’s Trident missiles and maintain Britain’s independent nuclear capability.
Their smaller Liberal Democrat partners are pushing for cheaper and less destructive alternatives, arguing that the current capability - the ability to obliterate Moscow - is an outdated hangover from the Cold War.
The two parties have postponed a final decision till 2016, after the next parliamentary elections, while agreeing in the meantime to fund the advance work needed to allow the submarines to be built on schedule should they be commissioned.
The Liberal Democrats insist that the advance contracts do not represent a commitment to a like-for-like renewal, but some analysts say it is unlikely that cash-strapped Britain would outlay huge sums on design and equipment it would later ditch.
The government said last year it expected to spend 3 billion pounds by 2015 on preparatory work for the new submarine fleet.
The deal to be announced on Monday also includes a contract to build the reactor for the last of seven Astute class nuclear-powered attack submarines Britain has on order.
The nuclear propulsion plant for the Vanguard successor will be the more advanced Pressurised Water Reactor 3 (PWR3) system, the government said last year.
Last month Hammond announced 350 million pounds of contracts, mainly with defence contractor BAE Systems, to design the Vanguard successor submarines.