Saudi Arabia has ordered 72 Eurofighter Typhoon warplanes from BAE Systems, Europe's largest defence company, for £4.43bn, in one of the biggest ever British export deals.
Analysts say the order, which has been brokered by the Government, will be worth £20bn over the lifetime of the aircraft.
A spokesman for the Ministry of Defence said the order was part of a new defence co-operation programme, Project Salam, adding: "The governments share key objectives on national security and actions to combat global terrorism."
Unions welcomed the announcement. Unite's national officer Bernie Hamilton said: "This is excellent news for the aerospace industry and the wider UK economy. This order will secure the future of two aerospace sites in the North-west of England and the jobs of thousands of highly skilled workers."
It was feared the agreement could be scuppered due to a Serious Fraud Office investigation into allegations that Saudi Arabia took bribes from BAE under a military-plane deal struck between London and Riyadh more than 20 years ago. But the SFO dropped the probe into the £43bn Al-Yamamah deal last year, creating a storm of controversy. The Government said the decision, backed by the former prime minister Tony Blair, was made on national security grounds but anti-corruption campaigners said that the Saudis threatened to pull the deal if the inquiry went ahead, and accused the Government of putting commercial interests before ethics.
In June, the US Department of Justice launched its own investigation into BAE over its compliance with anti-bribery laws.
It has been alleged that BAE secretly transferred more than $2bn (£1bn) to accounts controlled by Prince Bandar bin Sultan, then Saudi Arabia's ambassador to Washington. BAE and the Prince have always denied any wrongdoing in relation to dealings with Saudi Arabia.
BAE said the deal was an "important milestone in its strategy to continue to develop Saudi Arabia as a key home market with substantial employment and investment in future in-Kingdom industrial capability".
Eurofighter is a pan-European project, and profits from the Saudi deal will go to the consortium which includes BAE, the Franco-German group EADS and Italy's Finmeccanica.
A Saudi defence ministry spokesman told the state news agency SPA that the price paid per aircraft was the same that the Royal Air Force pays for the aircraft.
The deal follows an August 2006 agreement in principle and "a memorandum of understanding between the London and Riyadh governments to modernise the Saudi armed forces as part of their close defence ties", the spokesman added.
The announcement comes ahead of a three-day visit to Britain by King Abdullah of Saudi Arabia, his first since he rose to the throne of the oil powerhouse in August 2005. He will arrive in the UK at the end of October for talks on boosting ties between the two countries.