By Roberta Rampton

WASHINGTON (Reuters) - President Barack Obama on Monday told Egyptian President Abdel Fattah al-Sisi that he would lift a hold on U.S. military aid to Cairo, but also said the United States would stop allowing Egypt to buy equipment on credit starting in fiscal year 2018.

Obama has been reviewing military aid to Egypt since 2013 when the Egyptian army ousted former president Mohamed Mursi. The decision will allow for the delivery of 12 F-16 aircraft, 20 Harpoon missiles, and up to 125 M1A1 Abrams tank kits that had been frozen, the White House said.

Obama said he would continue to ask the U.S. Congress for $1.3 billion in military aid for Egypt per year, but has decided to "modernize" the aid by discontinuing the use of cash flow financing for military equipment starting in fiscal 2018, the White House said.

The United States also will target its aid toward equipment used for counterterrorim, border security, maritime security and Sinai security, and for sustaining weapons systems already used by Egypt, the White House said.

"In this way, we will ensure that U.S. funding is being used to promote shared objectives in the region, including a secure and stable Egypt and the defeat of terrorist organizations," said Bernadette Meehan, spokeswoman for the White House National Security Council, in a statement.

(Additional reporting by Arshad Mohammed and Julia Edwards; Editing by Sandra Maler)