NEW DELHI (Reuters) -- India has agreed to Russia's demand to renegotiate a $1.6 billion contract for an old aircraft carrier, a government minister has said, in a deal that has become a thorny issue in relations.
Under the deal signed in 2004, the Soviet-era Admiral Gorshkov would be refurbished and delivered to the Indian navy by 2008.
But delays have pushed back the delivery to 2012. The 44,570-ton ship's price has since nearly doubled to $2.8 billion, causing anger in New Delhi which was unwilling to pay the extra money.
But on August 4 the government said it had no option but to restart price talks with Russia, as the navy urgently needed the carrier.
"India is going to sit down with Russia to renegotiate the Gorshkov deal," Pallam Raju, the junior defense minister, told reporters.
"Negotiations are going on regarding the increased price and I think we will reach a reasonable decision on that soon."
Analysts say the delays and repeated Russian demands to up the price underline growing unease between one of the world's biggest arms buyers and its most trusted supplier.
"This has been a point of considerable contention between India and Russia and it has caused enormous dismay here," said Uday Bhaskar, director of the National Maritime Foundation, a defense think-tank.
Russia is also uneasy about India's growing ties with the United States and its plans to buy more weapons from Washington, defense experts say.
India has emerged as one of the world's biggest arms buyers, and is planning one of its biggest ever deals, a $10.4 billion deal to buy 126 fighter jets.
But most of its defense equipment is still made by Russia, India's most tried and tested defense partner for decades.
"The fact of the matter is India is a partner and any kind of impulsive decision will not be prudent or an option for India," Bhaskar said.