Australia says it has accepted a Japanese company's bid for a lucrative and hotly contested contract to build Australian naval vessels, expected to be worth 10 billion Australian dollars ($6.5 billion).

The Australian government aims to sign binding, commercial contracts with Mitsubishi Heavy and the Japanese government in 2026.

The frigate contract is the biggest Australian defence purchase since the government agreed to build nuclear-powered submarines with the United States and Britain in 2023. MHI's Mogami frigate was selected over German company Thyssen­Krupp Marine Systems' MEKO A-200 in a meeting of the government's national security committee on Monday.