By Andrew Gray

WASHINGTON (Reuters) - The United States and Russia have a chance to achieve a "real breakthrough" in their relationship by cooperating on missile defense, an influential U.S. senator said on Friday.

Senator Carl Levin, a Democrat from Michigan who chairs the Senate's armed services committee, said he believed President Barack Obama's administration was seriously interested in exploring cooperation with Moscow on the issue.

Missile defense has been a contentious subject between Moscow and Washington, particularly since the Bush administration sealed deals last year to deploy 10 interceptor missiles in Poland and a radar in the Czech Republic.

Washington says the system is to protect the United States and its allies from missile attacks by countries such as Iran, but Moscow has said the plans pose a threat to Russia.

"There is potential here for a real breakthrough in terms of our relationship with Russia, which is a relationship that needs strengthening," Levin told reporters.

"One of our strongest common interests is the threat that Iran creates if she gets a nuclear weapon," he said.

In a sign Moscow could be seeking better ties with the new U.S. administration, a Russian news agency on Wednesday quoted the Russian military as saying that it had halted plans to deploy its Iskander missile system near the Polish border.

Moscow had previously threatened to install the system in Russia's Western outpost of Kaliningrad as a response to any deployment of the U.S. missile shield in eastern Europe.

Levin said cooperation between Russia and the United States on missile defense would "change the entire dynamic vis-a-vis the world and Iran."

"Iran would see Russia and the United States coming together to defend themselves against an Iranian threat," he said.

"I don't think you can exaggerate the impact of that kind of a potential partnership."

The Bush administration held unsuccessful talks with Russia on missile defense cooperation. U.S. officials insisted they had made far-reaching proposals to work together but Russia rejected the offers as insufficient.

Levin said top administration officials, including Defense Secretary Robert Gates, who participated in the previous efforts, still believed cooperation was worth exploring.

The missile shield was a flagship U.S. defense policy under former President George W. Bush. Obama supports the program in general but has promised to subject it to more scrutiny and to ensure the technology is effective before more elements are deployed.

Michele Flournoy, Obama's nominee for the top policy job in the Pentagon, told the U.S. Congress earlier this month that plans to deploy the shield in Europe would be reviewed as part of a regular four-yearly look at policy, due later this year.

U.S. officials say construction at the sites in Poland and the Czech Republic could begin this year and they could become operational between 2011 and 2013.

(Editing by Mohammad Zargham)