German shipbuilder Lurssen has been named the main contractor and designer for Australia's $4 billion offshore patrol vessel project.
Lurssen's bid was successful in a three-way race against another German designer Fassmer and Dutch firm Damen.
Construction will begin towards the end of next year in South Australia, Prime Minister Malcolm Turnbull announced in Canberra on Friday.
The 12 new vessels will replace the existing Armidale Class patrol boats.
"Australian jobs, Australian workers, Australian steel, for Australia's navy, to keep Australia safe in these times of greater risk and greater challenge," Mr Turnbull said.
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While the first two boats will be built in Adelaide, the remainder will be put together in Henderson, Western Australia, from 2020 - when the construction of the future frigates begins.
The split build was designed to avoid the so-called "valley of death" in South Australian shipbuilding, when expertise and jobs are lost between major projects.
Defence Industry Minister Christopher Pyne denied the move would add time, cost and risk to the project, insisting it was an "intelligent" approach to grow a sovereign Australian shipbuilding industry.
"We want to use all the available resources to us and maximise the Australian involvement in that major project," he said.
Defence Force chief Mark Binskin said the announcement marked a great milestone in Australia's capability.
The new ships, which can remain at sea for longer, will improve the Navy's contribution to maritime patrols and missions in the region.
"The vessel is one of the most capable OPV in the world today, and it will meet all of the needs that we have," Mr Binskin said.
