The announcement comes the same week that Vice President Dick Cheney and Defense Secretary Donald Rumsfeld defended the jail after U.S. lawmakers said it had created an image problem for the United States.

Critics have decried the indefinite detention of Guantanamo detainees, whom the United States has denied rights accorded under the Geneva Conventions to prisoners of war. The prison was called "the gulag of our times" in a recent Amnesty International report.

An air-conditioned two-story prison, known as Detention Camp #6, will be built at Guantanamo to house 220 men. It will include exercise areas, medical and dental spaces as well as a security control room, the contract announcement said.

The contract announcement did not specify whether the new prison would also hold foreign terror suspects.

Under the deal with the Norfolk, Virginia-based U.S. Naval Facilities Engineering Command, Atlantic, the work is to be wrapped up by July 2006. It is part of a larger contract that could be worth up to $500 million if all options are exercised, the Defense Department said.

The project is to be carried out by Halliburton subsidiary Kellogg Brown & Root Services of Arlington, Virginia. It includes site work, heating ventilation and air conditioning, plumbing and electrical work, the Pentagon said.

The first prisoners arrived at the prison camp in January 2002 after the Sept. 11, 2001, hijacked airliner attacks on New York and the Pentagon.

The Pentagon has said about 520 detainees from more than 40 countries are being held at the prison, without giving a precise figure.

Rumsfeld said on Tuesday U.S. taxpayers had spend more than $100 million on construction costs and no other facility could replace it.