By Andrea Shalal

WASHINGTON, Sept 17 (Reuters) - U.S. military leaders this week seized on escalating Islamic extremism and increased spending by China and Russia, imploring Congress to scrap mandatory budget cuts that they say are leaving U.S. forces vulnerable and less ready to fight.

Frank Kendall, the Pentagon's chief arms buyer, told the annual Air Force Association conference that continuation of $1 trillion in forced spending cuts would further erode the readiness of the U.S. Air Force, which was forced to ground 13 squadrons last year and sharply curtail flying hours.

"The damaging defense budget cuts that Congress imposed under sequestration ... continue to take a toll on our military's readiness and modernization needs," he said.

He said industry, government and the military needed to adopt new approaches to respond to budget issues, technological and commercial transformations, and the changing character of war that were challenging the military services.

"Today, the predominance that our military has enjoyed for decades confronts powerful headwinds - and is being challenged in ways that we have not seen for decades," he said. He said China and Russia were investing heavily in advanced cyber, electronic warfare and special operations capabilities.

He said the U.S. military services were making hard choices, and trying to become more efficient, but Congress needed to act as well.

Air Force leaders issued similar warnings through the three-day conference, warning that U.S. fighter, bombers and other weapons were aging and in urgent need of replacement.

Air Force Secretary Deborah James told reporters that U.S. fighters, bombers and other weapons needed to be replaced, but further spending cuts would hit those programs hardest since the Air Force needed to safeguard funds for training and operations.

"We are imploring Congress to protect readiness," she said on Tuesday, noting that the Air Force was carrying out about 80 percent of the U.S. military's response to Islamic State.

James urged lawmakers to approve proposed measures such as base closures and airplane retirements so the Air Force could proceed with efforts to build a new long-range bomber, buy F-35 fighter planes, and pay for new aerial refueling planes.

Chris Chadwick, chief executive of Boeing Co's Defense Security and Space division, told the conference industry needed to be more creative in responding to the military's needs, such as forging more partnerships with other companies, even those outside the sector, and embracing disruptive business models such as the Uber car service.

Lorraine Martin, who heads Lockheed Martin Corp's F-35 fighter jet program, said key F-35 contractors were implementing an innovative self-funded cost-savings plan.

The companies are exploring about 600 specific proposals, investing in new processes and components to save money. If the savings prove out, the Pentagon will reimburse them.

(Reporting by Andrea Shalal; Editing by Bernard Orr)