Australia's new government has reached a €555 million settlement over a controversial decision last year to scrap the French submarine deal.
It's a move Canberra hopes will help repair the rift between the two countries.
Australia last year cancelled a multi-billion-dollar order for submarines with French military shipyard Naval Group and opted instead for an alternative deal with the United States and Britain.
EU chief Ursula von der Leyen said France was treated in an "unacceptable" way over the defence pact.
The move last September enraged Paris and triggered an unprecedented diplomatic crisis.
It has also riled China, the major rising power in the Indo-Pacific region.
The agreement "seriously undermines regional peace and stability and intensifies the arms race", Chinese foreign ministry spokesman Zhao Lijian told a regular press briefing.
Australia Prime Minister Anthony Albanese today told a news conference in Sydney that his Labor government had reached a "fair and equitable" settlement with Naval Group.
The cancellation last year of Canberra's order for a new conventional submarine fleet with Naval Group - valued at €38 billion in 2016 and reckoned to cost much more today - came after the previous government signed a trilateral security partnership with the United States and Britain.
The trilateral deal was for a fleet of nuclear-powered submarines with US and British technology.
Mr Albanese said the settlement would allow Australia to move forward in its relationship with France.
"Given the gravity of the challenges that we face both in the region and globally, it is essential that Australia and France once again unite to defend our shared principles and interests," he said in a separate statement.
Australia, the United States, France and its partners have all expressed concern about China's growing influence in the Pacific, a region that has traditionally been under their sway.
Their concerns increased after China and the Solomon Islands signed a security pact earlier in the year.
"We deeply respect France's role and active engagement in the Indo-Pacific," Prime Minister Albanese said.
