The Pentagon has notified the maker of an alternative engine for the next-generation F-35 fighter plane that its contract has been terminated.

Congress and the General Electric/Rolls-Royce group that was developing the engine were notified of the decision Monday. Rolls-Royce Corp. had about 130 people, mostly engineers, working on the F-35 project in Plainfield and Indianapolis, spokesman George McLaren said.

About 2,500 jobs—mostly in Indiana and Ohio—are tied to development of the engine, and GE has said that figure was in line to nearly double if the project reached peak production.

Work on the engine was stopped a month ago, saving $1 million a day on a 14-year-old project that Defense Secretary Robert Gates has called wasteful.

When Congress passed a long-delayed 2011 defense budget earlier this month, it contained no money for the engine, and the Pentagon then made the decision to kill it. In congressional testimony Gates said the second engine would require another $3 billion to develop.

Federal budget decisions also could affect other Rolls-Royce projects.

The British-based firm announced last month that it plans to move 2,500 employees from other locations in Indianapolis to a downtown office building on South Meridian Street formerly occupied by Eli Lilly and Co.