The contract is for Paveway IV, which is among the most advanced precision bombs in the world and considered the backbone of the RAF's bombing capability.
The contract has been awarded to Raytheon UK and will sustain some 450 jobs in advanced weapons manufacturing at its plants in Glenrothes, Scotland and Harlow, Essex.
A number of jobs will also be sustained at subcontractors Portsmouth Aviation Ltd, Portsmouth and Thales plant based in Basingstoke.
It is fitted with Global Positioning System (GPS) technology and laser guidance systems which mean that the precision delivery of the capability is unaffected by clouds or smoke screens, giving the UK the capability to conduct 24-hour attacks against a wide range of targets.
The weapon has a UK-developed fail-safe fuse mechanism which means that the bomb will only detonate once it has reached its intended target.
The Minister for Defence Equipment, Support and Technology, Peter Luff, said: "The Paveway IV bomb has been proven in combat in Afghanistan, where it continues to equip RAF Tornados, and in operations in support of the UN over Libya.
"By stabilising the Defence budget, more and more we are able to commit to equipment projects which help to safeguard our national security."
Paveway IV was first introduced to operations in Afghanistan in 2008 and plans are in hand to fit it to the RAF's Typhoon combat aircraft in 2013.
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