NEW DELHI (Reuters) -India is opening up a chunk of its protected government procurement market to foreign firms, including the U.S, two government sources said, in a shift that could extend to other trading partners after it was offered to the UK under a trade deal this month.

The government is likely to allow U.S. firms to bid for contracts worth over $50 billion, mainly from federal entities, as it negotiates a trade deal with Washington, the sources said.

Total public procurement - including by federal, state and local governments and state-run firms - is worth an estimated $700 billion-$750 billion per year, according to government estimates. Most is reserved for domestic firms, with 25% set aside for small businesses, although sectors like railways and defence can buy from foreign suppliers when domestic options are unavailable.

Earlier this month, India and the UK agreed on a free trade pact that gives British firms access to federal government contracts in select sectors - covering goods, services and construction - on a reciprocal basis.

"In a policy shift, India has agreed to open its public procurement contracts gradually to trading partners including the U.S. in a phased manner and reciprocal manner," said one of the officials, with the knowledge of the matter.

Only a portion of the government's procurement contracts - mainly linked to federal projects worth around $50-$60 billion - will be opened to foreign firms, while state and local government purchases will be excluded, the official said.

"Following the UK pact, India is ready to open a part of its public procurement market to the U.S. as well," said a second official.

Both sources requested anonymity, as details of the ongoing talks have not been made public.

The commerce ministry did not respond to requests for comment on the U.S. proposal or extending the plan to other nations.

India has long resisted joining the World Trade Organisation's Government Procurement Agreement, citing the need to protect small businesses.

In its March report on foreign trade barriers, the U.S. Trade Representative said India's restrictive procurement policies pose challenges for U.S. firms due to "changing rules and limited opportunities."

Indian Trade Minister Piyush Goyal visited Washington this week to advance trade talks, with both sides aiming to sign an interim agreement by early July, officials said.

New Delhi is pushing to clinch a trade deal with the U.S. within the 90-day pause on tariff hikes announced by U.S. President Donald Trump on April 9 for major trading partners, which includes a 26% tariff on imports from India.

The commerce ministry said in a text message that UK firms would only be allowed limited access to bid for contracts of non-sensitive federal entities, excluding state and local government procurement.

UK-based suppliers can bid for Indian tenders above 2 billion rupees ($23.26 million) while the UK will offer non-discriminatory access to Indian suppliers under its public procurement system, the ministry said.

The government has assured small industry that a quarter of the orders will be reserved for them, said Anil Bhardwaj, secretary general of the Federation of Indian Micro, Small and Medium Enterprises (FISME), a leading industry body.

"Opening procurement to foreign firms on a reciprocal basis offers an opportunity for Indian businesses in overseas markets as well," he said.

($1 = 85.9810 Indian rupees)