BAE Systems has won an £859m ($1.3 billion) initial development contract to build the next generation of Type 26 Global Combat Ship for the British navy.
"This is a substantial investment in our shipbuilding industry," Prime Minister David Cameron said in a statement on Friday.
Around 1,700 jobs would be sustained as a result of the funding. A new type of frigate for the Royal Navy known as the T26 would be the most advanced modern warships in the world, said Cameron, who unveiled the contract on Friday.
The defence ministry said the new frigate would be suited for complex combat operations, counter-piracy, humanitarian and disaster relief work.
The investment was part of the government's commitment to invest more than £160 billion in defence equipment over the next 10 years, Cameron said.