French military shipbuilder DCNS Group has won a $40bn (£27.6bn) submarine contract from Australia in a hard-fought global race for the politically charged deal. Australia's Prime Minister Malcolm Turnbull said all the 12 submarines will be built in Adelaide using local resources.

France beat Germany and Japan for the one of the world's most expensive defence agreements. The contract is aimed at replacing the existing Collins-class submarines with Barracuda-class customised vessels. The French deal is Australia's largest-ever defence procurement.

The French firm's design, to be implemented in non-nuclear-powered submarines for the first time, was chosen after a 15-month-long evaluation. The deal is expected to generate about 2,800 jobs in Australia. France had intensely lobbied for the contract with Defence Minister Jean-Yves Le Drian spending nearly a week in Australia in February 2016.

"This is securing the future of Australia's navy. The French offer best represented the capabilities best able to meet Australia's unique needs," the Australian prime minister told reporters in Adelaide. The first submarine of the fleet will enter the waters in the early 2030s. The cost of manufacturing the fleet will run up to two-fifths of the agreement while its maintenance will take up the rest.

"The recommendation of our competitive evaluation process of the panel, the department of defence, the experts who oversaw it, was unequivocal, that the French offer represented the capabilities best able to meet Australia's unique needs," said Turnbull. Australia's increased defence spending is also being closely monitored by Washington which is increasingly wary of China's influence in the region.

Germany's ThyssenKrupp Marine Systems (TKMS) and the Japanese government were among the unsuccessful bidders. Japan, which pulled out all stops to clinch the deal, was also seen as a frontrunner during the negotiations and this decision has come as a hard blow to Prime Minister Shinzo Abe.

Responding to Australia's decision in awarding the contract to France, Japan's Defence Minister Gen Nakatani said: "The decision was deeply regrettable. We will ask Australia to explain why they didn't pick our design."