The Phase 2 Program is worth up to $5 billion and is expected to deliver more than 250 highly-skilled, long-term jobs.
Victoria's defence industry generates $8 billion for the local economy, with more than 300 companies employing about 7,000 people.
The Victorian government said they welcome the announcement and that securing the LAND 400 Phase 2 Program would help cement Victoria's position as the lead state for military vehicle construction, helping to create jobs and economic growth.
The Victorian government believes they are the perfect candidate for the centre, as they have a proven track record in designing and manufacturing military land vehicles, including:
- Rheinmetall's MAN Military Vehicles and Supacat;
- Thales' Bushmaster and Hawkei protected mobility vehicles; and
- BAE Systems' M113 Armoured Personnel Carrier Upgrade Program.
Victoria Minister for Industry and Employment Wade Noonan said, "Victoria is Australia's home of military vehicle manufacturing and we are doing everything we can to maintain our world-class reputation.
"The LAND 400 Phase 2 project is worth billions to our economy and we'll continue working to secure this contract for Victoria."
Queensland Minister for State Development Dr Anthony Lynham said Queensland's shortlisting is a reflection of the state's strong defence capabilities.
"This is an endorsement of our state’s capabilities in land defence and heavy vehicle manufacturing and sustainment,” Minister Lynham said.
"It offers up to 250 long-term jobs and real opportunity into the future beyond the initial major contract, should Rheinmetall be selected by the Commonwealth."
Minister Lynham also said the Queensland government had been working behind-the-scenes to attract future phases of the $20 billion LAND 400 project.
"Queensland is home to the largest concentration of Australian Army personnel and assets, and offers unmatched heavy vehicle manufacturing capability," he said.
"Many of the leading innovative defence technology firms are already here and we are continuing to grow this sector and confirm Queensland as Australia’s front line for defence industries."
Rheinmetall is one of two companies chosen by the Department of Defence to bid for LAND 400 Phase 2 project. The other company vying for the contracts is BAE Systems.
Currently, the LAND 400 Phase 2 Risk Mitigation Activity (RMA) is on schedule for completion in August 2017. The RMA includes a 12-month test and evaluation program of the Rheinmetall and BAE Systems vehicles. It will also investigate options to improve Australian industry involvement in the LAND 400 program.
The decision to shortlist Victoria and Queensland is a welcome one after Victorian forces within the Turnbull government intervened to stop South Australia from winning the $5 billion land combat vehicle project on top its $50 billion submarine contract.
Victorian-based federal ministers and MPs lobbied Minister for Defence Industry Christopher Pyne earlier this year to argue the case for Geelong to be the project's hub.
Geelong is recovering from economic problems caused by the closure of Ford's carmaking facility. Holden and Toyota will also shut their factories in Victoria this year.
Although it is believed that South Australia offered a large incentive package for the contract, Victoria's claim for the contract includes testing facilities at nearby Anglesea, access to defence land near Avalon airport and a strong skills base in the Melbourne, Geelong and greater Geelong areas.