The deal includes the purchase of three Dakar submarines manufactured by German conglomerate company Thyssenkrupp.
Israel has signed a $3.4 billion deal to buy three cutting edge submarines from Germany.
The Dakar-class diesel-electric submarines will be produced by German manufacturer Thyssenkrupp and are expected to be delivered within nine years, Israel's defence ministry announced on Thursday.
The procurement "will upgrade the capabilities of the Israeli Navy, and will contribute to Israel’s security superiority in the region,” Israeli Defence Minister Benny Gantz said.
Part of the cost of the ships will be covered by the German government, the ministry said.
The deal also includes the creation of a training simulator in Israel, and the supply of spare parts.
According to analysts, negotiations between Israel and Germany on the deal were delayed and complicated by a suspected corruption affair involving Israel's last purchase of German submarines.
Israeli and German officials inked the arms deal days before the Israeli Cabinet is set to vote on establishing a governmental committee to investigate the submarine scandal known as Case 3000.
The high-profile investigation is around the acquisition of submarines and other warships from Thyssenkrupp between 2009 and 2016, under then-Prime Minister Benjamin Netanyahu.
Several Israeli businessmen, including Netanyahu's confidants and a former navy commander, are suspects in a graft scandal surrounding the purchase of naval armaments from Thyssenkrupp.
Netanyahu was not named as a suspect in that scandal, but is currently on trial in three other corruption cases.
The newly acquired submarines are not directly related to Case 3000.