The spending watchdog found that the country's 25 major defence projects are running �2.7bn over budget, while the cost of keeping old planes, ships and weapons in service costs another �426m.

Operations are suffering the effects of delays

In a major annual report on defence spending the NAO said the Ministry of Defence's performance in buying equipment and getting it into service on time is getting worse.

But the government says that recently introduced reforms will bring improvements.

It has brought in a new policy of "Smart Procurement" to improve the purchase of major pieces of equipment, identify problems earlier and ensure costs do not escalate.

The NAO, however, said: "It is too early to tell whether Smart Procurement will fulfil all of its aims. There is still a long way to go."

New anti-tank weapon

On average, the 25 major projects are running 47 months - almost four years - late compared with 43 months according to last year's report.

One of the worst examples highlighted is the delay in replacing cluster bombs with a new air-launched, anti-armour weapon called Brimstone.

This situation...has the potential to compromise the UK's defence capability

David Davis MP

The new weapon is expected to come into service in 2001, nearly 10 years later than originally estimated, leading to what the report called "significant operational implications" during the Kosovo conflict last year.

Because of the delay, Britain used cluster bombs, rather than their replacement, in the Kosovo campaign, and its forces are still clearing land of unexploded "bomblets" from the weapons.

Bomblets from US and British planes killed two British soldiers in Kosovo, and have also been blamed for the deaths of civilians.

Problems were also caused by delays in bringing in a new medium-range anti-tank weapon called Trigat which should have entered service in 1996 but is now not expected to be in service until 2005.

The report said the present Milan anti-tank weapons had an "extremely limited ability" and noted that by the time the new weapon comes into service, advances in tank armour will have made it less effective.

David Davis, the chairman of the Commons Public Accounts Committee which oversees the work of the National Audit Office, called the report a "serious indictment of the Ministry of Defence's ability to handle major projects".

He said: "This situation is unsatisfactory; it is failing the taxpayer in terms of efficient management of resources and it has the potential to compromise the UK's defence capability."