Spanish Defense Minister Jose Bono defended the two billion dollar deal, which will deliver 12 transport aircraft and eight military patrol boats to Venezuela, saying that no international embargo prohibited the transaction.

In an allusion to US pressure, Bono said at a signing ceremony that Spain was a "sovereign and autonomous country" that abided by international law and that "there was no greater empire than the law."

The United States, which has accused Venezuela's President Hugo Chavez of destabilizing the region, had lobbied Spain to drop the deal and signaled it still might block the transaction if US technology was involved.

"There may be some issues related to the fact that there would be US technology included in some of the equipment which Spain has said that it intends to sell to Venezuela," US State Department spokesman Sean McCormack told reporters in Washington.

The US government could try to demand that Spain secure a United States export license if the military aircraft had sensitive US technology. McCormack said that the US was "working through those issues" and added: "There hasn't been any final conclusion on that question yet."

Chavez praised Spain for defying what he called US hegemony.

"By confronting the hegemonic and imperialist ambitions of the elite that now governs the United States, Europe's dignified attitude can offer great help to the world," Chavez said at the ceremony which was broadcast on state television.

Bono said the project would benefit Spanish workers as construction of the military planes and boats would create 900 jobs in the new year.

The agreement involved a contract with the Spanish firm Casa-EADS to provide a dozen C-295 transport planes, including two equipped for surveillance, and a contract with the shipbuilding company Navantia to provide military patrol boats that Caracas says are needed to combat drug smuggling.

Oil-rich Venezuela has initiated a rebuilding of its armed forces, recently buying helicopters, some 100,000 AK-47 automatic rifles from Russia and military aircraft from Brazil.

The arms purchases have prompted concerns in Washington, which distrusts Chavez's leftist politics and his close ties to Cuban leader Fidel Castro. US officials say they fear arms sold to Chavez's government could end up in the hands of leftist rebels in Colombia. Washington has provided large-scale military assistance and equipment to the Colombian government.

Chavez has accused the United States of trying to topple him, castigated free trade policies promoted by Washington and has condemned the US-led war in Iraq as an "imperialist" adventure.

Aggravating tensions between the two countries, five US lawmakers were refused entry to Venezuela after landing in the capital, the US embassy in Caracas was quoted as saying by local television on Monday.

The delegation was led by Henry Hyde, the Republican chairman of the Committee on International Relations in the US House of Represenatives.

The move by Venezuelan authorities represented "a lost opportunity to build mutual understanding," US embassy spokesman Brian Penn told Globovision.

Spain's defense minister said the cargo aircraft were for peaceful purposes and that his government had not sold weaponry such as tanks, missiles or fighter jets. "A transport plane cannot be identified a a fighter plane, nor as a bomber," Bono said.

The sale had fulfilled European Union and NATO regulations, he said.

The arms deal had been brokered during a visit to Venezuela by Spanish Prime Minister Jose Luis Rodriguez Zapatero last March.

Russia has also rejected US protests of its arms sales while Israel recently bowed to US pressure and backed away from a deal to upgrade Venezuela's fighter jets.

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