The contract will create 100 new jobs in Stevenage and Peterborough and sustain around 800 others.
The Skynet 5D, which is the fourth satellite of its kind to be used by the MoD is roughly three times the length of a double decker bus and will be launched in 2013 playing a key role in gathering intelligence on operations.
The satellite will also be used to provide the telephone and internet welfare support facilities for Service personnel on operations.
Minister for Defence Equipment and Support, Quentin Davies, said: "Future operations require that our Armed Forces are given access to the best possible communications and this new satellite will go a long way to ensuring this.
"This value for money package not only builds upon a tried and tested capability for the Armed Forces, but also secures hundreds of jobs in a very important field of technology."
Lord Drayson, Minister for Science and Innovation, said: "The UK's thriving space and satellite industry has been a real recession-buster - creating jobs and achieving exceptional growth. This latest success cements the UK's position as a world leader in satellite technology, with the sector forecast to be worth £40Bn to the UK by 2030."
Darrell Midgley, MOD Defence Equipment and Support (DE&S), Information Systems and Services Networks Head, said: "The demand for satellite communications is growing faster than originally predicted. To ensure that future operations will continue to have access to the vital communications they may need, the MOD has decided to make arrangements to take advantage of the services that a fourth satellite in the Paradigm's Skynet constellation would provide."
