Australia's next generation of submarines could be built locally, Defence Minister Kevin Andrews has hinted, reversing plans reportedly favoured by former prime minister Tony Abbott to buy the vessels directly from Japan.

France, Germany and Japan are in the running to secure Australia's biggest ever defence procurement programme, a project expected to be worth Aus$50 billion (US$36 billion), to replace current diesel and electric-powered Collins Class submarines.

While Abbott, who was replaced by Malcolm Turnbull in a party coup on Monday, was said to favour buying off-the-shelf submarines from Japan as a more affordable option, Andrews signalled a preference for most of the build being in Australia.

French naval contractor DCNS told a parliamentary inquiry into naval shipbuilding in July the company would be able to carry out more than 70 percent of construction in Australia.

"I see that one of the bidders has said that they can build a significant part of a submarine here in Australia -- some 70 to 80 percent," Andrews told parliament Thursday, in comments seen by some local media as a major shift since Turnbull became prime minister.

"That means that we are going to have more jobs and a significant part of that build -- perhaps 70 to 80 percent -- of submarines built here in Australia."

DCNS Australia chief executive Sean Costello welcomed the minister's comments and said the firm would be able to build all the submarines in Australia or in conjunction with a shipyard in France.

"Both options achieve the same number of jobs," Costello told The Australian newspaper, in remarks published Friday.

John White, the Australian head of Germany's TKMS, which is also in the running to win the contract, told the newspaper the defence firm could also build all the submarines locally with some imported parts.

The bidding process has been politically contentious with fears an off-the-shelf purchase could kill off the domestic shipbuilding industry, which is mostly based in South Australia, the state with the highest jobless rate in the country at 7.9 percent.

grk/mfc/tm/jah

DCNS