The new engine, called the BE-4, could be ready for use in four years, and would cost substantially less than the Russian-built RD-180 engine now used to power ULA's heavy-lift Atlas 5 rockets, officials from both companies told reporters.
The U.S. government is grappling with how to reduce its reliance on the Russian-built engines, a matter of growing concern this year after Russia' actions in Ukraine.
The announcement showed mounting pressure on ULA, the sole rocket launch provider for most U.S. military and spy satellites, to lower costs as it faces growing competition from another entrepreneur, Elon Musk, and his firm Space Exploration Technologies.
SpaceX is seeking Air Force certification of its Falcon 9 rocket, and plans to release its own heavy-lift rocket to compete with ULA's Atlas 5 next year.
"It's really time for our country to move toward an all-American launch vehicle, and I can't think of a better way to get on that path," said Tory Bruno, chief executive of ULA.
Bruno told reporters ULA had a two-year supply of Russian engines, with 11 more to be delivered later this year and next. He said he did not expect problems with those deliveries, despite the company's decision to develop a U.S. alternative.
Bezos, a well-known technology entrepreneur, said he was excited to work on the project with ULA, which just carried out its 88th consecutive, successful launch.
He said the engine could pave the way toward a future in which "millions of people" lived and worked in space.
Pentagon acquisition chief Frank Kendall said he had not been fully briefed on the initiative, but called it an example of the innovative and creative ideas the military was seeking on how to end dependence on Russian-built engines.
General John Hyten, head of Air Force Space Command, welcomed news that the effort was privately funded, but stressed that any new engine would have to pass a rigorous certification process, like the one SpaceX is undergoing, before it could be used to launch expensive and critical satellites into space.
"I'm not sure which way we're (ultimately) going to go," he said. "But...the more competition and the more ideas we have, the better off we are."
Musk told Fox Business Network he viewed the ULA-Bezos agreement as a compliment. "If all your competitors are banding together to attack you, that's like a good compliment."
Bezos said ULA was making a significant investment in the development of the BE-4 engine, which would help accelerate the program, but gave no details. Bezos said only that it was possible to develop an engine for less than the standard estimate of seven years and $1 billion.
He said his company had been working for three years on the new liquid oxygen engine, which will deliver 550,000 pounds of thrust at sea level, and testing of various components was already under way at the company's new facility in West Texas.
Bezos said the engine could eventually be reusable, although ULA did not plan to recover them initially. Blue Origin was continuing to work on plans for its own orbital vehicle, which would re-use the engines and should be ready later this decade.
ULA said it would use two BE-4 engines on each of its boosters, providing combined thrust of over 1 million pounds, more than the RD-180 engine now used on the Atlas 5 rocket.
The engine will use liquefied natural gas.
Bezos said Blue Origin was also part of the Boeing team that won a $4.2 billion contract from Nasa on Tuesday to develop a space taxi. Boeing said its bid uses the Atlas 5 rocket and RD-180 engines, but leaves open the possibility of switching to a different engine or booster.
© Thomson Reuters 2014