The new ships, three of which will be super-cruisers with 2,600 berths, will all be built in foreign yards - two in Japan, two in France and one in Italy.
P&O, which also operates cross-Channel ferries and ports, said it would have liked to have placed one of the orders in the UK but the only yard capable of building such ships, Harland Wolff in Belfast, did not tender.
Three of the new vessels will be sister ships to the 110,000-ton Grand Princess, the biggest cruise liner in the world, which is operating cruises in the Mediterranean this summer. The two other new ships will be 88,000- ton vessels with 1,950 berths.
P& O already has four other cruise ships on order, including two of the Grand Princess class.
When all the ships are in service by the end of 2004, the P&O fleet will rise from 14 to 21 vessels with a total capacity of 40,000 berths, compared with 20,000 berths now.
The pounds 2bn cost of the fleet expansion will be funded through the disposal of P&O's property portfolio, its construction arm Bovis and Earls Court, which together are expected to raise a similar amount.
Although the expansion will still leave P&O third behind its two US rivals, Carnival and Royal Caribbean, it will make the cruise division by far the group's biggest business, accounting for 75 per cent of profits and more than half net operating assets.
Lord Sterling, the chairman of P&O, said he saw great opportunities to increase the cruise business in the next few years in markets such as Continental Europe, the Caribbean and Alaska.
According to P&O, there will be a doubling in the number of people in the US aged between 50 and 59 - its prime market - over the next 20 years.
Despite a 14 per cent increase in berths this year, P&O's bookings as a proportion of total capacity, are running ahead of last year's levels.
The new ships will be split between P&O's largest subsidiary, the Los Angeles-based Princess Cruises and its P&O Cruise business which is based at Southampton and serves UK and Continental markets.