The Ministry of Defence (MoD) has signed an £11m assessment contract with Lockheed Martin UK to develop an air and missile defence system for the Royal Navy.
Called Co-operative Engagement Capability (CEC), the system works by combining information from the radar of each ship in a fleet to create a single image.
The MoD claimed that this will give commanders an almost perfect aerial picture of the battlefield.
The move is the second phase of a programme to integrate CEC into the Type 23 Frigate Combat System, and should be in service by 2008. The US Navy already uses CEC in some of its ships.
Lord Bach, Minister for Defence Procurement, said in a statement: "It is a vital study into a system which could lead to a revolution in our naval air defence capability.
"By bringing together all the information from all the networked radar in the battle group, the 'fog of war' is reduced and the air defence commander will be presented with an accurate picture of all air target movements."
The 36-month assessment contract will conduct a study into the system and decide on future options for integrating it into Type 23 frigates.
CEC is already being assessed by BAE Systems in a separate contract for the Navy's next-generation air defence destroyers.
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