The Pentagon said Friday it is awarding a $10 billion cloud computing contract to Microsoft, following a highly scrutinized bidding process which Amazon had been favored to win.

The 10-year contract for the Joint Enterprise Defense Infrastructure program, better known as JEDI, ultimately will see all military branches sharing information in a system boosted by artificial intelligence.

"The National Defense Strategy dictates that we must improve the speed and effectiveness with which we develop and deploy modernized technical capabilities to our women and men in uniform," Defense Department Chief Information Officer Dana Deasy said in a release.

"This award is an important step in execution of the Digital Modernization Strategy."

Amazon was considered the lead contender to provide technology for JEDI, with its Amazon Web Services dominating the cloud computing arena and the company already providing classified servers for other government outfits including the CIA.

But the Pentagon earlier this year delayed awarding the hefty contract, saying the process would be reviewed by newly appointed Defense Secretary Mark Esper.

Esper was selected by US President Donald Trump, who has lashed out at Amazon and company founder Jeff Bezos, who owns The Washington Post.

In July, Trump said he had heard "complaining from different companies like Microsoft and Oracle and IBM" over the JEDI bidding process.

"We're going to take a look at it. We'll take a very strong look at it," he said, raising concerns among observers that the process would be improperly influenced.

Amazon said late Friday it was "surprised about this conclusion."

"AWS is the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly lead to a different conclusion," the company said in a statement.

Microsoft did not immediately respond to a request for comment from AFP.

The contract has caused controversy over whether internet giants who say they want to make the world better should be involved in the defence industry.

JEDI critics have likened it to the nefarious "Skynet" computing overlord in "Terminator" films.

Microsoft was Amazon's only rival in the final bidding for the winner-take-all contract, despite employees urging it to drop out.

"Many Microsoft employees don't believe that what we build should be used for waging war," company staffers wrote in an anonymous op-ed posted a year ago on Medium, which said it had verified the authenticity of the piece.

"The contract is massive in scope and shrouded in secrecy, which makes it nearly impossible to know what we as workers would be building."

Microsoft has defended its interest in military contracts, saying at one point, "All of us who live in this country depend on its strong defence."

Amazon chief Bezos had also defended the company's bid, saying it was important to support US defence efforts, even if it is unpopular.

Wedbush analyst Dan Ives expected Amazon, and perhaps others, to challenge the Pentagon contract decision in court but still saw it giving a major lift to Microsoft's cloud business in a market where $1 trillion is expected to be spent in the coming decade.

"This is a game-changer deal for Microsoft to win as this will have a ripple effect for the company's cloud business for years to come," he said.

"While the current political landscape further complicated this high stakes bake-off with JEDI, both Microsoft and Amazon among others will have much to gain over the coming years in these cloud sweepstakes."

Microsoft this week reported that quarterly profits rose 21 per cent on the back of its thriving cloud computing business which has become a core focus for the US technology giant.

The tactic is a major switch from the way the Redmond-based company built its empire selling packaged software to computer users.

Amazon, one of the world's most valuable companies, has expanded from its origins in e-commerce to cloud services, streaming media, artificial intelligence and other ventures.

Amazon Web Services accounted for nearly $9 billion in revenue in the recently-ended quarter, with growth in the cloud computing unit up 35 per cent from a year ago.