Taiwan said Sunday it had made progress on a multi-billion dollar contract with the United States to upgrade the island's F-16 fighter jets in an arms deal that has irked China.

The air force said in a statement it had received a "letter of answer" from Washington and was screening the items and prices listed.

While declining to specify the amount of the deal, it dismissed reports that the arms sale proposed by the United States had been inflated since it was announced by the Pentagon last year.

Washington in September said it had agreed to upgrade Taiwan's F-16 A/B fleet in a $5.85 billion deal.

China had expressed "great indignation" over the arms deal, summoning the US ambassador and warning the move would undermine relations between the two world powers and affect ties with Taiwan.

Washington's decision ended prolonged speculation over the extent to which it would help modernise the island's air force.

Taipei applied in 2007 to buy 66 F-16 C/D fighters, which have better radar and more powerful weapons systems than its F-16 A/Bs, in response to China's growing military muscle.

The US offer to upgrade Taiwan's existing fleet of 146 US-made F-16 A/Bs falls short of that ambition and is seen by some observers on the island as a "consolation prize".

However, Taiwan's defence ministry has said that the proposed upgrade, which will take 12 years to complete, would give its F-16 A/Bs a significant boost.

The jets will be equipped with radar capable of detecting Chinese stealth aircraft and may also be armed with precision munitions, according to the ministry.

Ties with Beijing have improved since Ma Ying-jeou of the China-friendly Kuomintang party came to power in 2008 on promises of ramping up trade links and allowing in more Chinese tourists.

But Beijing has refused to renounce the use of force against Taiwan even though the island has ruled itself for more than six decades since they split in 1949 at the end of a civil war.