The Pentagon has cancelled the highly sensitive, $10bn Jedi cloud computing contract that had been awarded to Microsoft, drawing a line under a contentious government bidding process that was marred by claims of interference by Donald Trump.

The US defence department said on Tuesday that it was reversing its decision to hand over large parts of its data and communications to a single company and that it would start a new procurement process.

The decision could bring an end to the long-running legal dispute triggered by the decision in 2019 to award the so-called joint enterprise defence infrastructure contract solely to Microsoft.

Amazon has accused Trump, who was president at the time, of putting pressure on the Pentagon to award the contract to its rival because of his animus towards its founder, Jeff Bezos.

John Sherman, Pentagon acting chief information officer, said: “The department has determined that, due to evolving requirements, increased cloud conversancy and industry advances, the Jedi cloud contract no longer meets its needs.”

The department said it would instead seek proposals for a new cloud computing contract from both Microsoft and Amazon, though it said it would continue conducting market research to see if any other companies might be able to fulfil its requirements.

Toni Townes-Whitley, Microsoft’s president for US regulated industries, wrote in a blog post: “We respect and accept [the] DoD’s decision to move forward on a different path to secure mission-critical technology.”

An Amazon Web Services spokesperson said: “We understand and agree with the DoD’s decision. Unfortunately, the contract award was not based on the merits of the proposals and instead was the result of outside influence that has no place in government procurement.”

The Jedi contract was supposed to be the centrepiece of the US military’s effort to push much of its computing operations away from physical services and on to the cloud.

But the process was fraught with controversy and beset by delays. It was held up in 2019 when Oracle, one of the original bidders, appealed against the decision to place only Microsoft and Amazon on the shortlist.

It was then subject to a last-minute review by Mark Esper, former defence secretary, after Trump complained that “great companies” had objected to the process.

When his administration finally made the decision to award the contract to Microsoft, it prompted an immediate legal appeal from Amazon, which alleged the administration ran a biased procurement process.

Trump had frequently clashed with Bezos, often accusing The Washington Post, which the Amazon founder owns, of attacking him unfairly.

Amazon lodged its appeal in 2019, but Microsoft said on Tuesday it had expected the legal process to drag on for another year.

Microsoft also called for reform of the system that allows for companies to protest against government contracting decisions, accusing Amazon of “delay[ing], for years, critical technology upgrades for those who defend our nation”.