The UK Chancellor George Osborne has committed to spend 2% of national income in defence sector, ending months of speculation over the government's plan.
In March, the UK MPs had voted 37 to three in favour of keeping defence spending at 2% of GDP.
With this development, the Ministry of Defence's (MoD) budget is expected to rise by 0.5% every year until 2020.
During his speech at Summer Budget 2015, the Chancellor said the UK Government's decision to meet Nato's target of defence spending 2% of GDP every year of this decade, saying that the country's defence budget would rise in real terms every year.
The additional financial funding will support the UK MoD to invest on new projects, such as replacing the Nimrod maritime patrol aircraft.
UK Prime minister David Cameron said: "We made some very clear commitments about the size of our armed forces, about the successor to the Trident submarine and also about the vital equipment programme, where we have the aircraft carriers and the other equipment vital to our armed services that are coming through."
Osborne said: "Britain has always been resolute in defence of liberty and the promotion of stability around the world.
"And with this government it will always remain so. So today I commit additional resources to the defence and security of the realm."
The budget also announced a new £1.5bn joint security fund a year by the end of the parliament for investment in the military and intelligence agencies. It also commits to protect in real terms counter terrorism spending of more than £2bn across government.