Prime Minister Anthony Albanese said the French firm had agreed to a "fair and an equitable settlement" of 555 million euros (US$584 million) for ending the multi-billion-dollar contract.

The agreement draws a line under a bitter spat that derailed ties between Canberra and Paris for the better part of a year.

In September 2021, then-Australian prime minister Scott Morrison abruptly ripped up the French contract, which was years in the making.

He announced that Australia would be buying US or British nuclear-powered submarines, a major shift for a country with little domestic nuclear capability.

The decision drew fury from French President Emmanuel Macron, who publicly accused Morrison of deceit.

Relations were on ice until this May, when centre-left leader Albanese was elected.

The submarine contract is the centrepiece of Australia's race to develop its military capabilities, as it fears the threat from a more bellicose China under President Xi Jinping.

The nuclear-powered submarines are likely to give Australia the ability to operate more stealthily and pose much more of a deterrent to China.

But there remains deep uncertainty about how quickly it can be implemented.

The first US or British submarines likely will not be in the water for decades, leaving a long capability gap as Australia's existing fleet ages.

arb/lb/oho

NAVAL GROUP