Boris Johnson is to unveil what is being billed as the biggest programme of investment in Britain’s armed forces since the end of the Cold War.

The prime minister will set out a four-year financial deal for the Ministry of Defence (MoD) to “transform” the military, developing cutting-edge capabilities in the future battlefields of cyber and space.

It will include the creation of an agency dedicated to artificial intelligence, and a “space command” capable of launching the UK’s first rocket by 2022.

The plan – to be announced in the Commons on Thursday – will see the MoD get an additional £16.5 billion over and above the government’s manifesto commitment to a 0.5% real terms increase for each year of the Parliament.

The move will come as a relief for military chiefs who have been pressing for a multi-year settlement to enable them to plan effectively for the future.

It is thought their demands were being resisted by the Treasury, with Chancellor Rishi Sunak holding out for a one-year deal – along with the rest of Whitehall – in next week’s spending review.

Mr Johnson said the settlement reflected the need to upgrade Britain’s military capabilities “across the board” amid an international situation “more perilous” than at any time since the Cold War.

“I have taken this decision in the teeth of the pandemic because the defence of the realm must come first,” the prime minister said.

“The international situation is more perilous and more intensely competitive than at any time since the Cold War and Britain must be true to our history and stand alongside our allies. To achieve this we need to upgrade our capabilities across the board.

“This is our chance to end the era of retreat, transform our armed forces, bolster our global influence, unite and level up our country, pioneer new technology and defend our people and way of life.”

The announcement marks the first phase of the government’s Integrated Review of the UK’s foreign, defence, development and security policy, with the final conclusions due to be unveiled next year.

Officials said it would cement the UK’s position as the largest defence spender in Europe and the second largest in Nato.

As well as promising a new space command, the Prime Minister will also set out plans for a national cyber force to protect the country from attack.

It will be underpinned by of an additional £1.5 billion investment in military research and development with a commitment to invest further in the Future Combat Air System to develop the next generation of fighters for the RAF.

Downing Street said that together, the various projects were expected to create up to 10,000 thousand jobs a year across the UK.

Defence Secretary Ben Wallace said: “This is excellent news for defence, and provides us with the financial certainty we need to modernise, plan for the future and adapt to the threats we face.

“It demonstrates the prime minister’s recognition of how important defence is to our resilience and to the reputation of the United Kingdom.

“This settlement secures UK jobs and livelihoods, allows us to invest in our fantastic shipyards and aerospace industry, spreading prosperity to every corner of the UK.

“Next year represents a huge opportunity for this country, and defence will be at the forefront of creating the jobs and business opportunities that will help us build back from the pandemic.”

Labour’s shadow defence secretary John Healey said: “This signals a welcome and long overdue upgrade to Britain’s defences after a decade of decline.

“Since 2010 the size of the armed forces has been cut by a quarter, defence spending was cut by over £8 billion and the defence budget has a £13 billion black hole.

“The UK has the know-how to be a global leader in new domains such as cyber and space, as long as government plays its part.”