US prosecutors failed to follow the law when they indicted Kuwait logistics company Agility for fraud over multibillion dollar contracts, according to a US magistrate judge.

Thursday's ruling represents an interim victory for the company but is unlikely to end government efforts to bring Agility to justice for what the US says were attempts to defraud the US military over supply contracts in the Middle East.

Judge Alan Baverman also rejected the government's charge that Agility is a 'fugitive' from US justice because of the way it responded to the case.

Agility said in a statement it welcomed the ruling, which represents a recommendation to the US district court in Atlanta.

The case emerged in 2009 when prosecutors accused Agility, formerly the Public Warehousing Co KSC, of overcharging the US Army over 41 months on $8.5 billion in contracts first signed at the start of the Gulf War in 2003.

Agility says the case involves a contract dispute and should not be regarded as a criminal matter. – Reuters