updated 3/4/2014 3:35:28 PM ET 2014-03-04T20:35:28

WASHINGTON (Reuters) - The U.S. Defense Department's fiscal 2015 budget includes $8.5 billion in funding for missile defense programs and reaffirms the Obama administration's plan to build 14 additional ground-based interceptors by 2017.

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The budget request, which must still be approved by Congress, includes $99.5 million to start work on a new common "kill vehicle," the top part of the ground-based interceptor that hits and destroys an incoming enemy missile on contact.

The new kill vehicle would eventually replace the current one built by Raytheon Co, which has suffered several test failures, the Pentagon said in budget documents. It did not spell out which kill vehicle would be used on the 14 new interceptors to be built.

Pentagon acquisition chief Frank Kendall told a conference last week that a new kill vehicle was needed, noting that the reviews of the program had revealed "bad engineering" on the current system.

Missile defense is one of the biggest items in the Pentagon's annual budget, although Republicans have faulted the Obama administration for scaling back funding in recent years.

Defense Secretary Chuck Hagel said the budget, which was informed by a major review of defense strategy, underscored the continued importance of missile defense, along with space, cyber and special operations, giving rapidly emerging threats.

Boeing Co is the prime contractor for the U.S. ground-based missile defense system, while Raytheon builds the kill vehicle and Orbital Sciences Corp makes the rocket that launches it into space.

Riki Ellison, chairman and founder of the nonprofit Missile Defense Advocacy Alliance, welcomed the funding increase for missile defense programs and said efforts to modernize the current ground-based system were overdue after its rushed initial deployment in 2004.

"It unequivocally has to be modernized, redesigned and fully integrated to handle the upcoming advancing threats of Iran, North Korea and others," Ellison said.

Boeing, Raytheon and Lockheed Martin Corp are already working on early designs of a new common kill vehicle.

There were no immediate details on the acquisition plan for the redesigned kill vehicle, or KV, but the Pentagon said it would be built with a modular, open architecture and designed with common interfaces to make upgrades easier, and help broaden the vendor and supplier base.

"The KV will improve reliability, be more producible and cost-effective, and will eventually replace the KV on the current ground-based interceptor fleet," the Pentagon said in its budget plan.

It said the next intercept test was planned for the third quarter of 2014, and it would focus on the reliability and performance of the ground-based missile defense system.

The budget also kicks off a program for a new long-range radar to be deployed by 2020, providing initial funding of $79.5 million, and said it would invest in several initiatives aimed at addressing ballistic missile threats "that are expected to increase in numbers and complexity."

It also funds a seventh Terminal High-Altitude Area Defense (THAAD) battery built by Lockheed, and 31 THAAD interceptors, as well as 70 new Missile Segment Enhancement missiles built by Lockheed for a cost of $420 million.

Raytheon builds the AN/TPY-2 radar used by the THAAD system.

(Reporting by Andrea Shalal and Phil Stewart; Editing by Bill Trott and Jonathan Oatis)

(c) Copyright Thomson Reuters 2014. Check for restrictions at: http://about.reuters.com/fulllegal.asp

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