SEOUL -- Daewoo Shipbuilding and Marine Engineering Co. gave in to government pressure Friday to lift its bid in a contract with a German firm amid allegations of "dumping".

The South Korean Shipyard said it has renegotiated shipbuilding terms and conditions and reset the contract price as demanded by the government.

Daewoo Shipbuilding said it had sealed a 348 million dollar deal to construct six 4,000-ton container ships for Hamburg-Sud of Germany by 2005.

The Commerce, Industry and Energy Ministry said Thursday it had instructed Daewoo Shipbuilding to raise its price for the contract to 58 million dollars for each freighter from 55 million dollars.

Siding with other losing local bidders, the ministry said Daewoo Shipbuilding's initial contract price offer was far below the "international standards" and issued the unprecedented price correction order.

"We have ... accepted the order and raised the contract price as demanded by the ministry by renegotiating payment terms," Daewoo Shipbuilding spokesman an Wook-hyeon told AFP.

Under South Korean law, a shipbuilder has to pay three times the total contract price in fines for defying government orders.

But an denied the ministry's "dumping" charges against his firm. He said: "We are considering filing a lawsuit against the government's decision, which is unreasonable. We can hardly accept the ministry's dumping charges."

The trade case emerged as South Korea and the European Union locked horns over alleged dumping at the World Trade Organization.

Last month, the EU took its formal complaint against South Korean shipbuilders to the WTO. The EU argues South Korean shipyards have been able to sell ships below cost because of government subsidies.

Denying the EU charges, South Korea said it would also file a separate complaint against European Shipyards with the WTO.

South Korea claim the EU move is a pretext to justify its plan to expand subsidies for its shipyards.