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The army will spend $1.3 billion on a new, Victorian-built armoured four-wheel-drive designed to withstand the blast of a roadside bomb.
Prime Minister Malcolm Turnbull has declared the purchase a major boost for local manufacturing, with 1100 to be built in Bendigo.
But Mr Turnbull said the decision to buy the armoured vehicle — after the devastation wrought by roadside bombs in recent years — does not signal the government expects Australia to again deploy troops to battlefields such as Afghanistan or Iraq.
Around 1100 of the new four-wheel-drives, knowns as Hawkei, will be built to replace the army's ageing and unarmoured fleet of Land Rovers, with the first delivery expected to begin in 2019.
Bendigo's mayor, Peter Cox, praised the decision and the promise of 170 new jobs after defence corporation Thales was awarded the contract ahead of international designs.
But Cr Cox said there could be as many as an extra 1000 jobs across Victoria as a result of the purchase.
A Thales spokesman said more than half of the Hawkei's main suppliers are Australian businesses, including makers of wire harnesses and laser cut steel from Melbourne.
Mr Turnbull was heavy in praise for Australian innovation and technology, and said the Hawkei might also find an export market, similar to the experience with the army's heavier Bushmaster troop carriers, sold to Japan and other nations.
The Bushmaster won plaudits for its protective features after roadside bombs, or improvised explosives devices, had a crippling effect on US forces during the occupation of Iraq and also became a major threat in Afghanistan.
Army chief Lieutenant-General Angus Campbell said on Monday that upgrades to the Bushmaster in response to the threat from roadside bombs had saved the lives of many Australian soldiers.
The design of the lighter Hawkei had drawn on these lessons, yet unlike the Bushmaster, the stripped back seven-tonne Hawkei could still be carried by a Chinook helicopter.
The Hawkei has been tested at the army's proving ground at Monegeetta, where Mr Turnbull and Defence Minister Marise Payne inspected four prototypes on Monday.
The Hawkei, which is around half the size again of an ordinary four-wheel-drive, will carry four troops, although a fifth seat can be fitted.
It can be armed with a .50 calibre machine-gun on the roof and be used for reconnaissance, command and control, or act as a two-person transport ute.
The government is facing a major decision on defence spending, with the army eager to upgrade other heavy troop carriers, with a total cost of about $10 billion, while the navy awaits a decision on the submarine build, which will cost at least $20 billion.
The air force has already won a $24 billion commitment from former prime minister Tony Abbott for a fleet of 72 F-35 joint strike fighters.
Former defence minister Kevin Andrews, sacked by Mr Turnbull after the leadership spill last month, commented on Twitter ahead of Mr Turnbull's announcement on Monday that he had been pleased to approve the Hawkei purchase some months ago.
The government's strategic blueprint, or white paper, for defence has also been expected, but Mr Turnbull did not see the Hawkei purchase as a signal of the government's intended future role for the military.
"The reality is that IEDs, for example, are a feature of the modern battlefield, and regardless of the context in which the ADF is operating, that type of threat is almost certainly going to be there," Mr Turnbull said.
"So these vehicles are able to operate in every terrain."
