SHIPBUILDER Swan Hunter will continue to cut jobs if talks over a lifeline naval contract drag on, it emerged last night.

The Tyneside yard is appealing to the Ministry of Defence to plug a two-year gap in its order book, by giving it a Royal Navy hospital ship conversion.

But the MoD does not want to award any new work until it has finished compiling a long-term procurement strategy for the entire shipbuilding industry.

Last night, a spokesman confirmed this will probably not be published this year.

He said: "It is a long process, but it is very important to get it right, rather than rush it and get it wrong."

John Mitchell, project director at Swan Hunter, said: "We would like to know now if there is work to follow.

"As it stands, our workforce will carry on shrinking, week by week."

The Royal Navy is commissioning 600,000 tonnes of new warships over the next two decades - twice the size of its present fleet.

Government officials are working on a strategy for how it allocates the work, to put an end to the boom/bust cycle of Britain's shipyards.

Swans is due to finish a £240m navy contract for two Royal Fleet Auxiliary vessels next year.

It is expected to land a large part of the £2.9bn CVF project to build two aircraft carriers, which should create about 3,000 fabrication jobs in the yard.

But work is not due to start until 2008, and bosses are concerned that there will be no fabricators left by then.

The workforce has already dwindled to about 700 from a peak of 1,600.

Mr Mitchell said: "We will probably have very few skilled structural workers on site from the end of this year. Numbers of welders and platers will be down to almost zero."

The delay also threatens a further 8,000 North-East jobs in the wider supply chain.

David Bowles, of Northern Defence Industries, which represents businesses in this sector, said: "While this debate is going on, the supply chain is suffering.

"The industry depends crucially on these companies, who are finding it harder and harder to stay afloat."

Meanwhile, ship repair group A&P confirmed that its A&P Tyne yard in Hebburn, South Tyneside, is planning to bid to become a major player in the CVF programme.

Swans is one of four yards earmarked for the project to build Europe's largest warships, along with BAE Systems Naval in Govan, VT Shipbuilding in Portsmouth and Babcock BES in Rosyth.

However, the MoD has not ruled out including other shipyards.

An MoD spokesman said: "The programme is at a very early stage.

"We had originally identified four yards as having the potential to take forward this scheme.

"At this moment, we have neither specifically ruled in or out any others."