The agreement with Saudi Arabian Military Industries (SAMI) for the design and construction of five Avante 2200 corvettes warships will start this autumn, with the last unit to be delivered by 2022, the official Saudi Press Agency reported.
The agreement appears part of a framework agreed in April during Crown Prince Mohammed bin Salman's visit to Spain for Navantia to provide warships to the Gulf state for around €2 billion ($2.3 billion).
A coalition of NGOs including Amnesty International had urged Madrid not to go ahead with the deal because the corvettes could be used in Saudi Arabia's military campaign against Iran-backed Huthi rebels in Yemen.
Saudi Arabia has long been a major global arms importer -- but some countries now refuse to sell weapons over the kingdom's role in the conflict in Yemen, gripped by what the UN calls the world's worst humanitarian crisis.
But Spain's loss-making shipbuilder Navantia appears to be banking heavily on the agreement, which has reportedly been under negotiation for years.
General view of the Navantia shipyard in Fene, northwestern Spain. Photo: AFP
SAMI says it aims to become a major player in the global defence industry and localise more than half of the kingdom's military spending by 2030.
The agreement announced on Thursday will generate up to 6,000 jobs for five years, including 1,100 direct jobs, SPA reported.
Under Prince Mohammed's "Vision 2030", a package of economic and social reforms aimed at reducing dependence on oil exports, Riyadh plans to spend €32 billion in transportation infrastructure in the next decade.
Spanish firms have already won two major infrastructure contracts in Saudi Arabia in recent years.
A Spanish consortium, Al-Shoula, is building a high-speed railway across the desert to link the holy cities of Mecca and Medina while Spanish construction group FCC leads one of three consortia building a rapid transit system in the Saudi capital.