IBM has been awarded a contract worth up to $1 billion (£600 million) to transform the US Department of the Interior's IT as part of a major cloud computing initiative.

The DOI is aiming to move its data and applications into the cloud as part of a drive to consolidate its 400 data centres and server rooms. These efficiencies will  support the department's wider aims of saving $100 million a year from 2016.

IBM will provide hosting and services as part of the deal, as well enabling the department to access its SmartCloud for Government, SmartCloud for enterprise and IBM AIX cloud. In addition, other government agencies will be able to access IBM's Cloud services through the DOI Foundation Cloud Hosting Services programme.

IBM was chosen as one of a number of companies to facilitate the transition to the cloud for the government department, which will include helping move SAP financial and business management applications to the cloud. Lockheed Martin and Unisys are among those also promised a slice of the DOI's $1 billion annual IT budget.

The contract comes as a boost for IBM, which has been investing heavily in building out its cloud offerings, with recent acquisitions such as that of Softlayer aiming to improve its public cloud capabilities.

However IBM has faced increased competition for government contracts as organisations look to move to the cloud. The firm lost out to Amazon Web Services on a $600 million contract to deliver cloud services to the CIA, sparking a court battle as IBM questioned the supplier evaluation process.