By Andrea Shalal-Esa

WASHINGTON, Oct 29 (Reuters) - The Pentagon this week said the Lockheed Martin Corp F-35 program had made sufficient improvement to plan for higher production in fiscal year 2015, but contract awards would be tied to progress on the fighter jet's software, reliability and other issues.

"Program progress is sufficient for the department to budget for an increase in the production rate in fiscal year 2015," Frank Kendall, undersecretary of defense for acquisition, technology and logistics, wrote in a memorandum dated Oct. 28 and obtained by Reuters on Tuesday.

"Award of higher production rates will be contingent on continued program progress," he wrote in the memo. He cited the need for progress in software development, improvements in a computer-based logistics system that is behind schedule, and resolution of several previously identified design issues.

The jet's reliability is also not growing at an acceptable rate, he said in the two-page memo.

The $392 billion F-35 Joint Strike Fighter, the Pentagon's biggest arms program, has seen a 70 percent increase in costs over initial estimates and repeated schedule delays, but U.S. officials say the program has made progress in recent years.

Lockheed is developing three models of the new radar-evading warplane for the U.S. military and eight countries that helped fund its development: Britain, Canada, Turkey, Italy, Norway, Australia, Denmark and the Netherlands.

"Success on the F-35 requires progress in all aspects of the program, and I am concerned that three areas in particular need additional attention: software development ... reliability growth and ALIS (Autonomic Logistics Information System)," Kendall wrote.

He said work on the final version of the software, known as 3F, was a particular concern since it was essential to achieving the desired combat capability of the F-35, and was running behind schedule.

He said the magnitude of the production increase in fiscal 2015, which begins Oct. 1, 2014, would be determined by Defense Secretary Chuck Hagel as the Pentagon finalizes its budget plans.

Lockheed expects to deliver 36 of the plans in 2013. Current government plans call an increase in F-35 production to 45 jets in the eighth production batch, a deal the government expects to negotiate early next year.

Those plans call for production to increase to 70 in the ninth batch of jets, of which about half would go to Britain and other foreign buyers. The Pentagon plans to award Lockheed a preliminary contract to start buying some materials for those planes later this year or early next.