Australia has unveiled plans to spend up to A$1 billion ($760 million) on unmanned reconnaissance aircraft.
Mr Hill said US drones were highly successful in Afghanistan and Iraq
Defence Minister Robert Hill said the money had been set aside to buy the drones under the new Defence Capability Plan (DCP) 2004-2014.
He said the invasions of Afghanistan and Iraq had proved the value of the drones for battlefield surveillance.
Under the DCP, Australia is set to spend a total of $38bn, continuing a steady upward trend in defence funding.
Mr Hill said the DCP - the result of a 12-month review of the armed forces - also envisaged:
- replacing the army's 40-year-old Leopard tanks with the latest German Leopard, the US Abrams or the British Challenger 2
- acquiring three new destroyers and two new landing vessels;
- upgrading the air force's F/A-18 Hornet fighter planes and acquiring a new airborne early warning and control aircraft
The defence plan did not make specific provisions for Australia's participation in the controversial US missile defence shield project, but Mr Hill said Canberra was "committed to the concept".
"The global situation has also brought our responsibilities, as an alliance partner of the United States, into sharper focus," he said.
Australia - which recently has seen an unprecedented level of its troops deployments oversees - was one the staunchest allies of the US-led war in Iraq last year.
The DCP makes a six-fold increase in funding for a squadron of US-made Northrop Grumman Global Hawk unmanned aerial vehicles (UAVs) which would patrol Australia's borders and could be used further afield.
Australia says it is committed to the US missile defence shield
"The success of the aircraft such as Global Hawk in operations over both Iraq and Afghanistan have demonstrated the huge capacity boost these assets can bring," Mr Hill said.
"You can put an unmanned vehicle up that can travel for up to 24 hours over a huge distance, you can basically have a continual surveillance capability with a squadron," he said.
Mr Hill added that the drones "would also be able to assist with civil tasks such as bush fire detection and response".
No prime contractors for the new aircraft had been identified in the DCP, but the plan envisaged to have the drones operational between 2009-2011.