Today, Masten Space Systems successfully flight-tested a rocket called Xombie at Mojave Air and Space Port in California. The feat could win the company second place in the level one prize of the NASA-funded Northrop Grumman Lunar Lander Challenge. The objective was to fly two missions between pads at least 50 meters apart while remaining in the air for at least 90 seconds.

Masten’s vertical take-off and vertical landing rocket flew for approximately 94 seconds between two pads 60 meters apart. The rocket engine, which is fueled by isopropyl alcohol and liquid oxygen, can produce about 850 pounds of thrust and the Masten team developed a flight-control system for the rocket using commercial components.

One of Masten’s competitors, Armadillo Aerospace, was the first to claim the level one prize, potentially earning the company $350,000. Second place is worth $150,000 (although the official results of Masten’s flight test are still pending).

Masten will attempt to claim the more difficult level two prize on October 28 or 29. This involves flying for longer, refueling and landing on a boulder-strewn pad. Two other companies, Unreasonable Rocket and BonNovA, also plan to launch bids to claim both levels in late October.

For the level two prize Masten plans to use a lighter rocket, called Xoie, which also has larger propellant tanks. The company says that completing these milestones puts it “squarely on track for high-altitude commercial flights starting in 2010.”

The goal of the Lunar Lander Challenge–an annual event that started in 2006–is to tap into the commercial industry and connect NASA with entrepreneurs.

This year’s challenge will end in October and any leftover prize money will be carried over to the next year–there are first and second place prizes for each level and the total prize fund is $2 million. The event has also caught the eye of many space investors–its name was buzzing around the Space Investment Summit 7 in Boston recently.

Follow the challenge on Twitter: NASAPrize