The Federal Government has announced it will spend $1.3 billion on new light armoured personnel carriers for the Army.

The Hawkei vehicles will be manufactured by Thales Australia, which also makes the Bushmaster armoured personnel carrier, in Bendigo.

They will replace part of the Army's ageing Land Rover fleet.

The Australian Army will order 1,100 Hawkeis, which are classed as "light protected mobility vehicles".

Equipped with a V-shaped hull which Thales says will help deflect IED blasts, the vehicles can be armed with weapons including heavy machine guns and grenade launchers, and is light enough to be carried by a Chinook helicopter.

Thales also makes the Bushmaster Infantry Mobility Vehicle, seen here in Afghanistan ( Corporal Hamish Paterson, file photo: Australian Defence Force )

Prime Minister Malcolm Turnbull and Defence Minister Marise Payne made the announcement at a test facility at Monegeetta, north of Melbourne on Monday morning.

Mr Turnbull said the investment will generate 170 jobs in technology manufacturing and provide soldiers with the best equipment available.

"This $1.3 billion investment will mean greater capability for Defence, around 170 more jobs in the innovative frontier of technology manufacturing in Victoria, and will consolidate Australia's position as a world leader in military transport technology," he said.

"The men and women of our armed services are entitled to the best equipment we can provide them to do their job and do it well, to faithfully defend our nation and our national interests.

"It's been designed with the future in mind so that as new technology becomes available it can be engineered into the vehicle to give our soldiers the best available tools in the most dangerous situations."

Ms Payne said the Australian-made vehicle would be a world leader and said there was "enormous potential" for it to be sold internationally.

"The fact that it is a lighter vehicle than the traditional Bushmaster, the fact that it has a degree of mobility in very high-risk areas, and has a significant degree of blast and ballistic protection for our serving members means that it should be very attractive on the international market," she said.

"We will work closely with Australian defence industries to make the most of those opportunities wherever and whenever we can.

"As well as Victoria there's obviously support and sustainment activities that occur elsewhere in Australia as well, so it does have a positive and very beneficial effect for Australian industry elsewhere."

The Government estimates the project will keep 170 jobs in the region and sustain another 60 in wider Victoria.

The Hawkei will follow the widely-praised Bushmaster armoured personnel carrier off the production line in Bendigo.

Thales was identified in December 2011 as the Federal Government's preferred bidder, and prototypes of the Hawkei have undergone a testing process since.

Member for Bendigo Lisa Chester said it was an exciting day for the region.

"It is so needed to be able to lock in the jobs," she said.

"We have got a great team out there that have been working there for many years on developing the Hawkei prototype, so the first thing is it locks in manufacturing jobs in Bendigo.

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"It is very exciting news that we are finally at the point where we are going to have the contract locked in and secured to be able to manufacture and continue to manufacture these vehicles here in Bendigo."

Speaking before the official announcement, Labor leader Bill Shorten said "big defence contracts" should stay in Australia.

"Ideally they should be built and... the money should be spent in Australia," he said.

"We want make sure that we have the best quality equipment for our service people, but we want to make sure that — all things being equal — the money gets spent in Australia."

Melbourne-based backbencher Kevin Andrews — removed as defence minister in the ministerial reshuffle — has emphasised his role in the awarding of the contract.

"This is the culmination of years or work, capably led by the Department of Defence and the Australian Army," he wrote on Facebook.

"I was pleased to take the Hawkei submission to the NSC [National Security Committee of Cabinet] some months back, at which point it was approved.

"The Hawkei purchase is also great news for Victoria, with an investment of over $1 billion in the local economy."