NASA will partner with Boeing and SpaceX to build commercially owned and operated "space taxis" to fly astronauts to the International Space Station, ending US dependence on Russia for rides.
Both companies are already sending cargo resupply ships to the space agency but the announcement marks the first time private sector companies will be entrusted with ferrying humans to the space station, NASA said.
The move to turn over "lower earth orbit" transportation to private industry will allow the space agency to focus on more ambitious missions like sending humans to Mars, NASA administrator Charles Bolden told reporters during a news conference at Cape Canaveral, Florida.
"Today's announcement sets the stage for what promises to be the most ambitious and exciting chapter in the history of NASA and human space flight," Bolden said.
"For the first time in more than 40 years, this nation is going to launch a vehicle intended to carry humans beyond lower earth orbit, more than 40 years," he said.
"We'll conduct missions that will each set their own impressive roster of firsts: first crew to visit and take samples from asteroid, first crew to fly beyond the orbit of the moon, perhaps the first crew to grow its own food - and eat it - in space, all of which will set us up for humanity's next giant leap - the first crew to touch down on and take steps on the surface of Mars," said Bolden.
The US space agency also considered a bid by privately owned Sierra Nevada Corp, but opted to award the contract to long-time aerospace contractor Boeing and California's SpaceX.
Boeing was awarded $4.2 billion to SpaceX's $2.6 billion. SpaceX is run by technology entrepreneur Elon Musk, also the CEO of electric car manufacturer Tesla Motors.
The awards position both Boeing and SpaceX to be ready for commercial flight services in 2017, said Kathy Leuders, manager for NASA's Commercial Crew program. She said both contracts have the same requirements.
The contract has taken on new urgency given rising tensions between the United States and Russia over its annexation of the Crimea region of Ukraine and support for rebels in eastern Ukraine.
By flying astronauts commercially from the United States, NASA could end Russia's monopoly on space station crew transport. The agency pays $70 million per person for rides on Russian Soyuz capsules, the only flights available for astronauts since the retirement of the US space shuttle fleet in 2011.