The contract for two U-209 submarines follows on from a deal signed in summer 2011 for two of the same submarine types which was worth €920 million.
A source said: “The new contract will be for two more U-209 to reach the target of four. “Two is not enough to have a permanent sea patrol. With four, you will have one for maintenance, one for training and one ready to dive and one at sea.”
The first two submarines from the 2011 contract are being constructed in Kiel by HDW, a subsidiary of ThyssenKrupp Marine Systems (TKMS).
The 2011 deal angered Egypt’s regional rival Israel which previously bought nine submarines from TKMS and wants to maintain naval dominance in the eastern Mediterranean.
News of a second submarine order is likely to anger Israel further ahead of a visit by Chancellor Angela Merkel to Israel at the end of February.
When that contract was signed in 2011 Germany said it would wait until 2016 to deliver the submarines to see how the political and military crisis in the country played out.
But that has not stopped the Germans from entering further negotiations with the Egyptians over a second order for two more U-209s.
It comes amid criticism of the German government for approving a huge arms deal to Saudi Arabia for more than 100 patrol boats worth €1.4 billion, reported by Der Spiegel magazine on Monday.
Vice-chancellor and economics minister Sigmar Gabriel stated in an interview with Stern magazine last week that Germany’s new coalition government would be more ethical over arms exports.
“It is a disgrace that Germany is among the biggest arms exporters,” he said.
But on Monday he defended the deal with Saudi Arabia saying the boats could not be used by the regime against its own people.
Story continues below…
Since the military coup in Egypt against the elected President Mohamed Morsi in July 2013, the most populous Arab country has been on the brink of civil war.
"It's irresponsible in the midst of a political upheaval in Egypt to sell submarines," the Hamburg MP Jan van Aken told the Abendblatt newspaper in September 2013 referring to the deal for the first two U-209s.
TKMS declined to comment on the new contract when asked by The Local.