The Australian government has agreed to pay French defence company Naval Group A$830mn (US$585mn) to sever a submarine contract as it prepares to switch to nuclear-powered submarines as part of the Aukus alliance with the US and UK.

Australia had spent A$3.4bn on the Attack-class programme, which did not deliver any submarines, and had budgeted for a potential A$5.5bn hit to extricate itself from the French contract. Anthony Albanese, Australia’s new prime minister, described the deal as an “extraordinary waste”.

The decision to cancel the A$90bn deal with Naval for 12 submarines triggered a meltdown in relations between France and Australia last September. Naval is majority owned by the French government and the contract was a flagship deal for the country’s defence industry.