(Adds Bashir on PA&E, paragraphs 6, 13)

By Louis Charbonneau

EL FASHER, Sudan, June 5 (Reuters) - Sudan said on Thursday it was banning U.S. companies from working with international peacekeepers in Darfur and would not renew a contract held by a unit of U.S. defence firm Lockheed Martin Corp.

The move deepened a rift between Africa's biggest country and the United States, which this week suspended talks on normalising ties after a decade of U.S. sanctions.

"We are not going to allow American companies in this country with the Mission in Darfur," said Sudan's ambassador to the U.N. Abdalmahmoud Abdalhaleem, at the start of a visit by the U.N Security Council to Darfur.

"There are sanctions ... so they can not benefit. Why are they sanctioning us?"

Abdalhaleem added Sudan would not renew an engineering contract held by PA&E, a 100 percent owned subsidiary of Lockheed Martin, when it finished in July.

Sudan's President Omar Hassan al-Bashir brought up the issue in a closed-door meeting with envoys from the U.N. Security Council. He told the 15 council members that the choice of PA&E was "bizarre", a source in the meeting said.

U.S. Sudan envoy Richard Williamson suspended talks on normalising relations with Sudan this week, saying northern and southern Sudanese leaders were not serious about ending recent clashes that have stoked fears of a return to civil war.

Relations have been further strained by Washington's use of the word "genocide" for the Darfur conflict -- a description that Khartoum rejects.

The U.S. has imposed sanctions on Sudan for more than a decade.

Sudan's ambassador said officials had already given PA&E a three month extension from the end of their last contract in April to July. But it would not be extended further.

"It is final," he said.

Sudan would prefer to offer contracts to Sudanese or African countries, he added, but would still consider bids made by European groups.

In a speech to the Security Council, Bashir said he would like the United Nations to focus attenton on "local procurements and contractors", according to the written text of the speech.

The Security Council envoys drove past a large PA&E sign as they entered the headquarters of the joint U.N.-African Union Mission in Darfur (UNAMID) during a visit to El Fasher, capital of North Darfur, on Thursday.

The joint AU-U.N. special representative for Darfur, Rodolphe Adada, told reporters on the trip that the Lockheed contract had been discussed during this week's stalled talks between Sudanese officials and the U.S. special envoy to Sudan.

"This was discussed with the government and today the U.S has also discussed it with them. This is one of the elements of the bilateral talks," said Adada.

A U.N. internal investigative unit in January said it was investigating how the U.N. came to award a $250 million contract to the Lockheed Martin subsidiary without competitive bidding.

The U.N. Office of Internal Oversight Services (OIOS) said the contract was to build five peacekeeping bases in Darfur.

International experts say more than five years of conflict in Darfur have killed 200,000 people and driven 2.5 million from their homes. Khartoum says 10,000 have been killed and blames the Western media for exaggerating the conflict. (Writing by Andrew Heavens; Editing by Andrew Dobbie)

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