Austal's chief executive David Singleton said the agreement offers an excellent Australian solution to the three shortlisted European tenderers, as well as a strong partnership for the government to expand on.

"The Austal/ASC Shipbuilding agreement offers a compelling, low risk, Australian shipbuilding solution for the three shortlisted international designers: BAE, Fincantieri and Navantia," Singleton said.

"ASC Shipbuilding and Austal represent the success and excellence in Australia’s sovereign naval shipbuilding capability, a capability established through years of investment and experience in developing an Australian skilled workforce.

"The agreement also offers the Australian government an unrivalled shipbuilding partnership that has the ability to expand the existing indigenous capability."

In the Naval Shipbuilding Plan and 2016 Defence White Paper, the Australian government outlined its key objectives of developing a sovereign and sustainable shipbuilding capability in Australia.

Austal said the partnership brings together its experience in aluminium shipbuilding, exports and operational efficiency, and ASC’s expertise in steel warship manufacturing.

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Singleton said the company's partnership with ASC will also allow Australia's shipbuilding industry to be 'export competitive'.

"We are exceptionally proud of Austal’s export heritage, a record that has seen us sell more than 255 ships to 100 customers in 44 countries, including the United States. The opportunity to work with ASC Shipbuilding to bring Australia’s shipbuilding industry into an export competitive position is a game changing announcement and something we are both very excited about," said Singleton.

The $35 billion Future Frigate Program will deliver replacement vessels for the existing Anzac fleet with production scheduled to commence from 2020 at the federal government-owned shipyard in Osborne, South Australia.

BAE Systems, Navantia and Fincantieri are the three shortlisted tenderers for the project.