India's transport minister Nitin Cadkari has cancelled a contract to build a $1.5 billion tunnel in the Himalayas, after opposition politicians alleged irregularities in the bidding for India's most expensive road project.

IRB Infrastructure Developers Ltd won the right to build the Zojila Pass tunnel in Jammu & Kashmir state in January after it emerged as the sole bidder. It said Gadkari's ministry had cancelled the award without giving a reason.

"We have no clue as to why," Virendra Mhaiskar, IRB's managing director, told Reuters on Wednesday.

Shares in IRB fell more than 4 percent on the cancellation of a deal worth three-fifths of its entire order book. They later rebounded to trade 1 percent up.

India's opposition Congress Party had seized on the winning bid for the 100.5 billion rupees ($1.49 billion) project, accusing Gadkari of violating India's anti-corruption rules - a charge the ministry rejected.

Gadkari, a leading figure in Modi's nationalist government, is leading a drive to upgrade India's infrastructure. This week's annual budget

hiked annual spending on roads and railways by 22.5 percent to $33 billion.

As state transport minister in Maharashtra in the 1990s, Gadkari championed the construction of India's first major express highway. That toll road, from Mumbai to Pune, is one of around 20 road concessions now run by IRB.

IRB has acknowledged having invested in a company owned by Gadkari in the early 2000s, when the latter did not hold public office. Both Mhaiskar and Gadkari have denied any wrongdoing.

Digvijaya Singh, Congress general secretary, has said that these past links between Gadkari and Mhaiskar should have been disclosed in relation to the tunnel tender.

Modi is sensitive to charges his government cosies up to big business rather than working for everyday Indians, and is desperate to avoid the corruption allegations that dogged his predecessor.

A senior transport ministry official said the decision to cancel the tender was taken at "the highest level" but declined further comment beyond saying the project would be retendered this month.

A call to Gadkari's spokesman went unan-

swered.

The roads ministry said on Jan. 12 that it had followed due process and maintained complete transparency in the Zojila tender, and that IRB won only after it was extended several times in the absence of other participants.

Mhaiskar said he did not think the cancellation had anything to do with the alleged irregularities. IRB would await the revised terms of the new tender before deciding whether to bid again.

"The allegations have no base," Mhaiskar said of the rebuttal by the transport ministry after the tender was awarded in January. "The matter was rubbished by the ministry there and then."

One analyst said that IRB still had good chances of winning the order. "They are the only company in the country who can take on this type of project," said Vibhor Singhal at Phillip Capital in Mumbai.

The 14 km tunnel would open up a strategic highway running east from Kashmir's summer capital Srinagar that now only opens in the summer months. Its completion would strengthen New Delhi's grip on the disputed region, over which India and Pakistan have fought two of their three wars.