The Italian defence company Leonardo has been given a £165m contract extension by the British government for its work maintaining the Royal Navy’s fleet of 54 Merlin helicopters, in an sign of the impact of the UK’s commitment to ramp up defence spending.

Keir Starmer’s government, which is planning to increase military spending to 2.5% of gross domestic product by 2027, said the deal with Leonardo would help to bolster national security.

Leonardo said the extension would help to support 1,000 jobs, including 200 workers at its factory in Yeovil in Somerset, as well as 800 across the wider UK supply chain. The agreement will also support jobs at the Royal Navy’s airbase at Culdrose in Cornwall.

The Ministry of Defence described Merlin helicopters as “submarine hunters” that are “capable of intercepting pirates and drug runners, saving the lives of stricken mariners, and delivering stores and people”.

Maria Eagle, the minister for defence procurement and industry, said: “This investment demonstrates our unwavering commitment to maintaining cutting-edge defence capabilities that keep us safe, while utilising defence as an engine for economic growth.”

The Merlin helicopter, known to James Bond fans for its appearance in the final shootout of the 2012 film Skyfall, is built at the Yeovil plant, the UK’s last remaining helicopter factory, which also carries out some of the maintenance.

Nigel Colman, the managing director at Leonardo Helicopters UK, said: “Working closely with the Ministry of Defence and Royal Navy, we’re keeping the Merlin fleet supported and available, so it’s ready to fly whenever and wherever it’s called upon.”

Leonardo was the prime contractor for the maintenance of the Merlin helicopters, with Lockheed Martin and Serco appointed subcontractors, the government said.

Starmer announced in February that the UK would spend more on defence, funded in part through cuts to the overseas aid budget, a move condemned by international development groups.

The rise in defence spending equates to about £13.4bn every year from 2027 – with an ambition to increase military spending to 3% of GDP during the next parliament.

The contract extension for the Merlin comes as the Royal Air Force’s Puma helicopters were retired after more than half a century of operations in conflicts around the world, following a series of farewell flights around the UK. The Ministry of Defence has not yet announced a replacement for the Puma.

Leonardo has emerged as the single bidder for a £1bn contract to build new medium-sized helicopters, after it proposed the AW149, which would be built in Yeovil. The government is expected to award a contract for a new medium helicopter later in the year.