The company said the contract would "significantly" reduce the number of employees at its San Diego manufacturing facility that could be laid off this year, and its shares rose 4.5 percent to $74.45 in late morning trading.

General Dynamics said it would immediately begin building the first of the two Mobile Landing Platform ships ordered and that contract could include a third vessel, which would boost the total value to $1.3 billion.

General Dynamics earlier this year said it was considering lying off about 350 of the 3,600 employees at its San Diego site.

Defence contractors have been feeling the pinch this year as the U.S. government looks to scale back its spending on new military hardware to stem the nation's rising budget deficit.

Separately, on Saturday, General Dynamics said its Gulf Stream unit had resumed flight testing its in-development G650 aircraft which it had paused since an April 2 accident.

Copyright Reuters, 2011