In a statement, the defence ministry said it signed a contract to acquire two "Type 218SG" submarines, which are projected to be delivered in 2020.

It said the deal included a logistics package and a crew training arrangement in Germany, but did not reveal the total cost.

The two new submarines, along with Archer-class submarines purchased from Sweden in 2005 will replace its Challenger-class submarines that were built in the 1960s and acquired by the city-state in the 1990s.

"The replacement submarines will have significantly improved capabilities and be equipped with Air Independent Propulsion Systems," the ministry said in the statement.

The German firm said the propulsion system significantly increases a submarine's underwater range, reducing the risk of discovery.

Singapore announced in September it was acquiring an advanced European air defence system to replace its ageing US-made Hawk surface-to-air batteries.

It has set aside Sg$12.34 billion ($9.84 billion) for defence in 2013, up from Sg$11.83 billion in 2012.

Singapore, surrounded by far larger neighbours, has pursued a robust defence strategy since its acrimonious split from Malaysia in 1965.

All able-bodied men must serve for two years in the military upon turning 18, providing additional manpower on top of the estimated 20,000 regulars.