"Defense Contractors are currently issuing massive Dividends to their Shareholders and massive Stock Buybacks, at the expense and detriment of investing in Plants and Equipment," Trump wrote in a lengthy post on his Truth Social platform.

Trump said defense company executives would be barred from earning more than $5 million annually until they build new manufacturing facilities and accelerate delivery of military equipment.

Trump argued that "as high as it sounds," $5 million "is a mere fraction of what they are making now."

The announcement took the markets by surprise, sending US companies in the defense sector -- such as Lockheed Martin and General Dynamics -- about 1.4 percent lower. Northrop Grumman lost more than two percent.

"This situation will no longer be allowed or tolerated!" he said.

Trump also criticized maintenance and repair timelines for equipment already sold, demanding that service be "spot on, on time."

"I will not permit Dividends or Stock Buybacks for Defense Companies until such time as these problems are rectified," he wrote, arguing that companies should fund investments with its own cash rather than through government contracts or bank loans.

The statement did not specify what legal authority Trump would use to enforce the threatened restrictions, but the White House has hinted that it was planning an executive order to impose such reforms.

US Defense Secretary Pete Hegseth, in a November speech, warned defense contractors that he was revamping the Pentagon's acquisition methods to "transform" government.