The government began the process of privatising IMI Systems, formerly known as Israel Military Industries, in 2013.

The firm is the manufacturer of the legendary Uzi submachine gun and the Galil assault rifle. It also manufactures armoured vehicles and trains security agents.

According to the agreement, Israel-based Elbit will buy IMI for 1.8 billion shekels ($522 million/424 million euros) and could pay the state another 100 million shekels based on IMI's performance.

Elbit would also relocate the IMI facilities from central Israel to the southern Negev area, a move that would allow real estate development in central Israel and economic development in the Negev, the finance ministry said in a statement.

The finance ministry did not give a timeline for the finalisation of the deal, which would have to be approved by the Israel Antitrust Authority.

IMI provides technologies and weapons to the Israeli army as well as to militaries abroad, and employs some 3,200 people, according to its website.

Israel was the world's sixth-largest defence exporter in 2016, according to industry analyst IHS Markit.