Work on Challenger 2 tanks would be carried out at a new £5.5m manufacturing facility at Lockheed's Ampthill site in Bedfordshire, which was opened in June in order to modernise Warrior and Ajax vehicles.
The project will replace several key systems of the battle tanks, which have been in service since 1998.
The partnership will bring together Lockheed's experience in armoured fighting vehicles and Elbit System’s expertise in LEPs and obsolescence management across more than 3,000 platforms.
Elbit Systems UK CEO Martin Fausset said: “Elbit produces one of the most diverse and comprehensive ranges of land-based sensors and systems in the industry.
"The company’s total solution concept covers the entire spectrum of combat vehicles, from complete modernisation and training to maintenance depots and lifecycle support services.
“Working through its UK subsidiaries, which employ some 500 people, Elbit Systems expects to both create and sustain high-tech jobs in several locations across the country.”
Lockheed Martin UK currently serves as the prime contractor for the Warrior Capability Sustainment Programme, which is upgrading at least 380 armoured fighting vehicles for the army.
The company is also designing and delivering 245 turrets for the Ajax vehicles.
BAE Systems has also recently formed a new team to bid for Challenger 2 LEP.
The Team Challenger 2 will also include General Dynamics Land Systems-UK, General Dynamics Mission Systems-International, Leonardo-Finmeccanica, Moog, QinetiQ and Safran Electronics.
Image: Challenger 2 entered service with the British Army in 1998. Photo: courtesy of Lockheed Martin Corporation.