WASHINGTON, Dec 22 (Reuters) - The Pentagon's internal watchdog on Monday questioned whether the U.S. government is paying United Technologies Corp too much to maintain the F117 engines that power Boeing Co's C-17 cargo plane, and it urged greater oversight.

The Pentagon's inspector general faulted the Air Force for buying $1.54 billion worth of maintenance and repair services on a sole-source, commercial basis, without first assessing if a commercial market existed for the services.

It recommended that the Pentagon's director of pricing block further Air Force contracts for F117 maintenance with Pratt & Whitney, a unit of United Technologies, until Pratt provided the information needed to evaluate whether the Air Force was getting a "fair and reasonable price" for the work.

Tensions are growing between weapons makers and the Pentagon over the treatment of commercial items and services. When the U.S. military buys items considered commercial, it generally pays less but also receives less detailed cost or pricing information than in cases involving non-commercial items developed solely for the government.

Pratt said it believed it had provided the Air Force sufficient data to declare "commerciality," and that its investment in the F117 engine had saved the government significant operations and maintenance costs.

Pratt & Whitney spokesman Matthew Bates said the company's performance-based logistics system for servicing the F117 engine had tripled the time it could be used, eliminating 1,000 shop visits and saving $3 billion in costs.

The F117 is a common derivative of the successful PW2000 engine, which powers the Boeing 757. Pratt funded its development and has sold this engine commercially to the Air Force since the early 1990s. The company and a large number of commercial airlines and repair facilities have been providing commercial overhaul and repair services for the engine for over 25 years.

The watchdog report urged the Air Force to review how well its officials complied with rules for determining commerciality, and to consider corrective actions as appropriate.