Taiwanese President Tsai Ing-wen says the island will build its own submarines to get around China's efforts to prevent it from purchasing such craft from overseas.
Tsai oversaw the signing of a memorandum of understanding on the construction of subs during a visit to the navy's main base in Tsoying, also spelled Zuoying, on Tuesday.
The craft will be built through a joint venture between the government's Chungshan Institute of Science and Technology and the formerly state-owned CSBC Corp.
The announcement comes weeks after Tsai announced a $2.1 billion investment in the production of air force jet trainers to be designed and manufactured on the island.
China has successfully used its diplomatic and economic clout to prevent many overseas military purchases by Taiwan, which Beijing claims as its own territory.