The deal means Marconi has ironed out Spearfish's chronic reliability problems, which had caused embarrassment at the Ministry of Defence and given British Aerospace a chance to attack its rival's record in the takeover battle for VSEL.
About 80 per cent of the manufacturing will be sub-contracted, and Spearfish will be fitted on all submarines. Roger Freeman, Defence Procurement Minister, said the deal would create 40 jobs at Marconi with hundreds more safeguarded across British industry.
The Spearfish torpedo is a highly advanced modern system designed to destroy all known and predicted enemy submarines and surface ships. It is already in service and will progressively replace the ageing Tigerfish torpedo.
Cost over-runs on Spearfish and other defence projects were heavily criticised by the National Audit Office.
Yesterday defence chiefs delayed a crucial decision on a huge helicopter deal in an attempt to force down the price of British-made equipment.
Ministers had expressed hopes that an announcement on the competition between the Westland EH101 and the American Chinook for the battlefield utility helicopter contract would be made this year. But a senior defence source said yesterday: "We remain in negotiations with Westland."
The RAF has been trying to persuade the Government to buy the giant, twin-rotor Chinook manufactured by Boeing rather than the smaller and more expensive British aircraft.