German shipbuilder ThyssenKrupp Marine Systems GmbH says it remains solidly in the running for one of the world's biggest current defense contracts, as Australia edges closer to a decision on a multibillion-dollar submarine fleet replacement.

With the over 20 billion Australian dollar (US$14.4 billion) contest between Japan, Germany and France turning increasingly bitter amid sniping between bid rivals, ThyssenKrupp Australia Chairman John White said recent Japanese media reports—citing unidentified sources—that the Germans had effectively been ruled out amid concerns about their ability to build larger submarines were wrong.

"ThyssenKrupp have built almost two-thirds of the world's diesel electric submarines in the last 50 years," Mr. White said, while acknowledging that Canberra's ambitions for the project posed technical hurdles for all three bidders. "For [anonymous] competitors to say ThyssenKrupp is having troubles is not really worthy even of a comment."

Australia's submarine replacement is being closely followed in Washington, with the U.S. said to be keen for Australia to team up with Japan in a deal that would also help solidify defense ties between all three countries in the face of a more muscular China.

While the Pentagon is officially agnostic on the selection process being run by a close ally, the national security adviser to Australia's former conservative Prime Minister Tony Abbott, Andrew Shearer, wrote in a recent foreign policy article that U.S. officials privately believed the Japanese Soryu submarine was "superior".

ThyssenKrupp is offering its new Type 216 submarine, designed to meet Australian requirements that include long-range capability and endurance to suit the country's vast ocean territory. It is up against a conventional version of the 4,700-metric-ton Barracuda, built by France's DCNS, and Japan's 4,700-ton Soryu-class submarine, which is built by Mitsubishi Heavy Industries Ltd. and Kawasaki Shipbuilding Corp. and is viewed as the front-runner.

With a proven design, Japan is strongly favored to win a contest that would mark its emergence as a major weapons exporter for the first time since World War II, although a deal aligning Tokyo more closely with Canberra would also risk riling Beijing, which receives around a third of Australian exports.

Senior defense and political figures familiar with the contract process backed Mr. White's assessment that the contest was still a three-way race after talks this week in Canberra between Australian officials and ThyssenKrupp Chief Executive Heinrich Hiesinger and Marine Systems Chairman Hans Atzpodien.

"The process is still as open as the seas they'll be patrolling," said one lawmaker who has been closely following the selection for a project that will be worth A$30 billion in maintenance on top of the A$20 billion construction contract.

Senior DCNS officials will arrive in Canberra next week to push their competing bid, with the French promising to deliver more advanced boats than those it is already constructing for India.

"If you look at the other submarines, they also involve changes to their designs that arguably are even more challenging," he said. "We are completely confident that the process is being run in a professional and rigorous way."

In a soon-to-be-released defense policy paper, Malcolm Turnbull's government is expected to cut the size of the order to eight submarines, from 12 originally, as Australia's resources-focused economy reels from falling commodity prices and a sharp slowdown in mining investment.

Write to Rob Taylor at rob.taylor@wsj.com

(END) Dow Jones Newswires

February 04, 2016 22:55 ET (03:55 GMT)