By Jim Wolf

WASHINGTON, Sept 16 (Reuters) - U.S. lawmakers on Tuesday sharply questioned a Bush administration plan to reallocate more than $250 million in military aid to Pakistan to help it pay for F-16 fighter aircraft upgrades designed to go after militants' sanctuaries near the Afghan border.

"Do we have flying al-Qaeda?," asked Rep. Gary Ackerman, chairman of the House of Representatives Foreign Affairs Subcommittee on the Middle East and South Asia.

The rhetorical question from Ackerman, a New York Democrat, reflected doubts that the F-16, built by Lockheed Martin Corp <LMT.N>, was the most effective arm against al Qaeda and Taliban fighters in and around Pakistan's tribal lands.

Previously, the Bush administration had planned to use the military grants involved on surveillance planes and Cobra helicopters, said by some critics to be more effective.

At issue, Ackerman said, was getting Pakistan the needed hardware and training rather than "simply to make Pakistani generals feel good about themselves."

Along with several of the panel's Republicans, he voiced doubt about Pakistan's commitment to going after Islamist militants and frustration at Islamabad's stance on any U.S. cross-border raids.

Bush administration officials told lawmakers the F-16 had taken on a kind of "iconic" importance to Pakistan as a symbol of the ups and downs of the bilateral relationship and commitment to each other.

The F-16 "has achieved strategic importance as a symbolic barometer of the overall state of our relationship," said Donald Camp, principal deputy assistant secretary of state for South and Central Asian affairs.

Vice Admiral Jeffrey Wieringa, director of the Pentagon's Defense Security Cooperation Agency, said a so-called Mid-Life Update for the existing 46-plane F-16 fleet would greatly boost Pakistan's ability to conduct close-air support and night precision attack missions.

The upgrades would let older F-16s use precision guided munitions that could dramatically reduce "collateral" damage and civilian casualties, Wieringa testified.

To help pay for the planned upgrades, the Bush administration asked Congress to reassign by Oct. 15 Pakistan's remaining $110 million in fiscal 2008 U.S. grant aid ticketed for Pakistan's military purchases.

In addition, it is asking to shift another $142 million for the upgrades next year. Starting at the end of 2009, Pakistan would foot the updates out of its own funds, officials told Congress.

U.S. help in footing the upgrade bill will provide the newly elected government of President Asif Ali Zardari, widower of assassinated former prime minister Benazir Bhutto, "valuable fiscal flexibility" as he deals with rising food and fuel prices, Camp said.

Panel member Ed Royce, a California Republican, deplored Pakistan's nonproliferation record and raised concerns about a relationship that was, he said, centered on a fighter jet. He also questioned the decision to supply air-to-air missiles along with new F-16s that Pakistan is buying.

"Isn't India the only regional play against which this (air-to-air capability) would be applicable," Royce asked.

Committee member Brad Sherman, a California Democrat, said it would be "foolish to think" it would take China any more than a year to get access to the electronic brains of any F-16s that go to Pakistan.

Richard Boucher, assistant secretary for South and Central Asia, told Reuters on Monday the State Department believed it has the authority to shift counterterrorism aid to the fighter program if Congress balks.

(Editing by Cynthia Osterman)

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