The Royal Navy's new generation of nuclear submarines, to be built in Cumbria, will not now be ready until at least 2008, it has been revealed.
The BAE shipyard in Barrow has already suffered job losses
The cost of the Astute submarine programme - already running at £2.5bn - is also to rise by almost £700m, according to the Ministry of Defence (MoD).
The submarine building programme, earmarked for BAE System's Barrow yard, is already almost two years late.
The troubled defence contractor said it had come to an agreement with the MoD over new costings and timescales, and that there were no immediate threat to Cumbrian jobs.
The MoD deal with BAE also includes work on the new Nimrod maritime patrol aircraft project, which will also see higher costs and a later delivery date.
Defence Procurement Minister Lord Bach said: "The government has reached agreement with BAE Systems on a way ahead for these two strategically important defence projects.
"We have agreed a new structure for the two contracts which reduces risk, while placing new incentives
on the company to perform.
"As a result, the government has agreed to
increase its funding by around £430m, subject to final negotiations, as against an increased contribution by the company of £250m."
Lord Bach pointed to problems with the submarine's complex computer design methods as the main reason for the delay and extra costs.
He added: "Costs incurred through restructuring and other revisions to the project will result in the first submarine coming into service by 2008.
"We are confident the new deal represents a good deal for the taxpayer and will provide outstanding new generation attack submarines for the Royal Navy."
A spokesman for BAE Systems said: "Under the agreement, production of the Astute submarines, which are made in Cumbria, has been halted and will be resumed only when design is ready.
"However, there are no job implications for Astute workers."
In January BAE Systems announced it was cutting more than 1,000 shipbuilding jobs in Cumbria and Scotland.