* Subic Bay was key U.S. naval asset until 1992 when it was shut
* Turned into economic zone, though U.S. ships make port calls
* Philippine military has never stationed forces at Subic Bay
* Facility lies opposite disputed South China Sea
* Scope for more U.S. military access under new defense deal
US warships are seen docked at Subic bay in Olongapo City, north of Manila. Photo by Lorgina Minguito, Reuters
MANILA - The Philippines will station new fighter jets and two frigates at the former U.S. naval facility in Subic Bay from early next year, officials said, the first time the massive installation has functioned as a military base in 23 years.
Using Subic Bay would allow the Philippine air force and navy to respond more effectively to Chinese moves in the disputed South China Sea, security experts said. Subic Bay's deep-water harbour lies on the western side of the main Philippine island of Luzon, opposite the South China Sea.
"The value of Subic as a military base was proven by the Americans. Chinese defense planners know that," said Rommel Banlaoi, a Philippine security expert.
Once one of the biggest U.S. naval facilities in the world, Subic Bay was shut in 1992 after the Philippine Senate terminated a bases agreement with Washington at the end of the Cold War.
Manila converted the facility, which was never home to the Philippine military, into an economic zone.
Defense Undersecretary Pio Lorenzo Batino told Reuters the Philippine military signed an agreement in May with the zone's operator, the Subic Bay Metropolitan Authority, to use parts of the installation under a renewable 15-year lease.
U.S. warships have called regularly at Subic Bay since 2000, but only to dock during exercises with the Philippine military or to use its commercial facilities for repairs and resupply.
Officials said once Subic Bay was a military base again, the U.S. Navy could have much greater access to it under a year-old agreement that gives U.S. troops broad use of local military facilities, although that deal is on ice after it was challenged in the Philippine Supreme Court.
Residents hold onto their nets as they fish in the shallow waters near Subic Bay Freeport in Subic, Zambales. Photo by Lorgina Minguito, Reuters
Using Subic would be the latest Philippine military move to combat China's maritime ambitions.
Besides beefing up security cooperation with the United States, Japan and Vietnam, the military plans to spend $20 billion over the next 13 years to modernize its armed forces, among the weakest in Southeast Asia.
China, which claims nearly all of the South China Sea, said it was aware of reports of the arms buildup.
"We hope that the Philippines does more to benefit regional peace and stability," the defense ministry said in a statement faxed to Reuters.
AIR WING RELOCATING
Two FA-50 light attack fighters made by Korea Aerospace Industries, the first among a dozen ordered last year, would be based at the former Cubi Naval Station in Subic Bay from early 2016, two Philippine generals told Reuters. The two planes arrive in December.
The full squadron of FA-50s would be based at Subic, as well as the 5th Fighter Wing, which would relocate from a rundown base in northern Luzon, said the generals, who declined to be identified.
Two naval frigates would be stationed at Subic Bay's Alava Port.
The generals cited proximity to the South China Sea and the ease in making the base operational as reasons for the move.
"There are existing facilities in Subic Bay. We need only to refurbish them," one officer said.
Since Subic Bay hasn't functioned as a military base for more than two decades, it was not among eight locations the Philippine armed forces has said the U.S. military could use under the stalled 2014 defense deal.
The Enhanced Defense Cooperation Agreement would allow the U.S. military to deploy at Philippine bases for longer periods than under existing accords as well as build barracks and facilities for logistics purposes.
The agreement has been frozen since left-wing politicians challenged its constitutionality last year. The Supreme Court is expected to issue a ruling in the coming months.
"(Subic) could be one of the locations ... under the Enhanced Defense Cooperation Agreement," Batino said.
The Pentagon has said there were informal talks about Philippine base locations but that no plans would be implemented until the Supreme Court issues a ruling.
Security experts noted that Subic Bay is only 145 nautical miles (270 km) from Scarborough Shoal, which China seized from Manila in 2012 after a three-month standoff with the Philippine navy.
The disputed Spratly islands, where China is building seven man-made islands, some with military facilities, lie further to the southwest of the shoal.
China might one day also turn Scarborough Shoal into an artificial island, which could make it harder for the Philippines to protect its 200-nautical mile (370 km) exclusive economic zone off Luzon, said Patrick Cronin, a regional expert at the Center for a New American Security in Washington.
"New Korean-built light fighter aircraft could reach Scarborough Shoal in just minutes, and maritime patrol aircraft or drones could eventually provide persistent coverage of Chinese movements in the area," Cronin said.
"A return to Subic Bay, this time led by the Philippine air force, would seem to be a prudent defensive response."
(Additional reporting by Ben Blanchard in BEIJING; Writing by Dean Yates; Editing by Mike Collett-White)