U.S. Defense Secretary Ash Carter informed Indian Defence Minister Manohar Parrikar of the decision during the latter's visit to Washington this week and said it was made possible by the strengthening relationship between two countries.
"As a result of this policy update, the Secretary is confident that the United States will be able to expand cooperation in production and design of jet-engine components," the joint statement said.
It said the two sides looked forward to U.S. companies working with their Indian counterparts "to submit transfer requests that will benefit from this updated policy."
The statement gave no details of the policy update and a Pentagon spokesman was unable to provide more information.
India and the United States were often at odds during the Cold War but have been working in recent years to expand defence cooperation given shared concerns about China's rising power.
The United States has become one of the main sources of weapons for the Indian military, and under Indian Prime Minister Narendra Modi's "Make-in-India" programme has offered joint development and production of military technologies.
The scope of this Defense Technology and Trade Initiative (DTTI) has so far been modest because of concerns about intellectual property protection on the part of U.S. companies.
In June, Carter and Parrikar signed a new 10-year defence cooperation pact and sealed an agreement for joint development of protective gear for soldiers against biological and chemical warfare, and another on building generators.
In August, the two sides also held an inaugural working-level meeting aimed at establishing broader cooperation on the design, development and production of aircraft carriers.
Parrikar told a joint news conference on Thursday that he had told Carter of India's desire for further collaboration in higher-end technologies under DTTI.
He said "many" more DTTI initiatives could be expected that would involve technology transfers and U.S. firms setting up production facilities in India.
"This enhanced cooperation will definitely result in a great deal of things coming out in the next six months," he said without elaborating