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French firm Dassault has emerged as the lowest bidder for a $10bn (£6.3bn) contract to supply India jet fighters.

Dassault Aviation, as preferred bidder, will now enter final talks before signing a deal that will supply India's air force with 126 Rafale aircraft.

Correspondents say this is one of the world's biggest defence deals and is a major setback for rival bidder, the Eurofighter Typhoon.

Eurofighter lost out in December on an $8bn deal to supply jets to Japan.

Shares in Dassault Aviation rocketed more than 20% as the latest news broke.

The Typhoon is built by the German and Spanish branches of European aerospace giant EADS, Britain's BAE Systems and Italy's Finmeccanica.

Officials at the British High Commission in Delhi said they were disappointed with the decision and would now study the details.

"It was expressly said this was about the cost of the contract, not a reflection on the health of bilateral relations between India and the countries," the commission said.

A spokesman for the Eurofighter Typhoon consortium told the ´óÏó´«Ã½ they were disappointed, but stressed that the decision was not final and negotiations were still going on.

"However, we respect the decision of the Indian MoD. With the Eurofighter Typhoon, we offered the Indian Air Force the most modern combat aircraft available," he said.

"Based on the Indian government feedback, we will now carefully analyse and evaluate this situation together with our European partner companies and their respective governments."

´óÏó´«Ã½ defence and diplomatic correspondent Jonathan Marcus says the Indian air force is going through an unprecedented period of modernisation; a response in part to China's developing air power.

Four other bidders had dropped out in the lengthy Indian selection process.

He says various reasons were in play in the Indian decision, including diversifying from Russian hardware and contractual problems with other bidders.

French Minister of State for Foreign Trade Pierre Lellouche welcomed the deal, the first foreign order for the Rafale multi-role jet.

He said: "This is good news and France needs good news right now... It is good news for our aerospace industry and for our defence industry."

Mr Lellouche also complained that "political pressure applied by our competitors does not make things very easy".

James Hardy, Asia Pacific specialist at IHS Jane's Defence Weekly, said this was a "big loss for Eurofighter".

"The Typhoon was widely tipped to be the favourite and had major political support from the big beasts of the Eurofighter nations. Both Germany and the UK invested a lot of time in pushing the Typhoon, so this will hurt."

Indian Defence Minister AK Antony had earlier cautioned that this remained a "long process" and that no deal would be signed before the end of March.

One Indian defence ministry source confirmed to Reuters that the Rafale had been "much cheaper unit-wise", adding: "Moreover, the Indian air force, which is well-equipped with French fighters, is favouring the French."

India is the biggest arms importer among emerging nations.