The two firms will each have a 50-50 stake in the new Italy-based company, Leonardo Rheinmetall Military Vehicles (LRMV), which will be up and running early next year.

Their first goal is to develop the new Italian main battle tank (MBT) to replace the current Ariete and which will be based on Rheinmetall's Panther KF51.

"We are creating a new heavyweight in European tank production," said Armin Papperger, chief executive of Rheinmetall, in a press release.

He added: "We are primarily addressing the Italian market, but we will also be targeting other partner nations which are in need of modernising their combat systems in the future."

Roberto Cingolani, head of Leonardo, added: "This is a significant step towards the creation of a European defence system based on specialised shared platforms.

"Rheinmetall and Leonardo aim at developing state-of-the-art technologies able to compete at international level."

The joint venture will also work on the new Lynx platform for the Armoured Infantry Combat System (AICS) programme.

"The development and production of other vehicles of this family, such as recovery, engineer and bridge-laying vehicles, is also planned," the statement said.

Sixty percent of the work will be carried out in Italy, with the new venture based in Rome and in La Spezia, while labour will be divided equally between Leonardo and Rheinmetall.