The agreement includes building warships and frigates in Saudi Arabia through a joint venture with the French firm. Military deals with Saudi Arabia have come under renewed scrutiny since the October killing of journalist Jamal Khashoggi in the Saudi consulate in Istanbul.
Saudi Arabia signed a preliminary agreement on Sunday with France's Naval Group – a naval defence manufacturing firm in which the French state holds a 62.49% stake – to build warships in the kingdom.
Saudi Arabian Military Industries (SAMI), the kingdom's state defence company, made the announcement at the IDEX military exhibition in Abu Dhabi, a showcase event for its close ally the United Arab Emirates (UAE).
The agreement includes building warships and frigates in Saudi Arabia – among the top five defence spenders in the world – through a majority SAMI-owned joint venture with the French firm, SAMI chief executive Andreas Schwer said.
"Through design, construction, and maintenance activities the joint venture will contribute significantly to further enhance the capabilities and readiness of the Royal Saudi Naval Forces," he said.
Saudi Arabia set up SAMI in 2017 to develop domestic manufacturing capabilities with the aim of producing half of the country's required military equipment domestically by 2030.
The localisation of Saudi Arabia's military needs is part of efforts led by de-facto ruler Crown Prince Mohammed bin Salman to diversify away from an oil-based economy.
Military deals with Saudi Arabia have come under renewed scrutiny since the October killing of Washington Post columnist Jamal Khashoggi in the Saudi consulate in Istanbul.
Germany halted arms exports to Saudi Arabia over what it said was the uncertainty surrounding the murder.
The US Senate, in a largely symbolic gesture, voted in December to end US military support for the war in Yemen and blame the Saudi crown prince for the murder of Khashoggi. Saudi Arabia denies its crown prince was involved.