Defence Minister Robert Hill said the decision would lead to a significant upgrade in capability of the Collins Class fleet.

The Government will acquire the advanced capability torpedoes – known as the Mk 48 Mod 7 ADCAP – which will be developed through a collaborative program between the United States and Australia.

Senator Hill said the torpedoes would be used by both the US Navy and Royal Australian Navy and will enter into service in 2006.

"Defence will now sign a Memorandum of Understanding with the US Navy to jointly develop, produce and support the torpedoes," Senator Hill said.

"This approach offers a range of benefits, including substantial savings through using existing US production lines and contracts.

"Cooperating with the US Navy means we have the opportunity to jointly develop the weapon and to continue working on it to meet our particular requirements.

"The cooperative approach also provides opportunities for Australian industry to participate in supporting the torpedoes while in service."

Senator Hill said the Australian Submarine Corporation had found there were no problems associated with integrating a marginally heavier torpedo into the submarine.

The new torpedoes will complement the replacement combat system for the Collins Class submarines, also approved recently by the Government. Enhancements to the tactical command and control component and the sonar processing elements of the combat system represent a significant capability enhancement on the existing system.