A statement issued by India's Hindustan Aeronautics Limited said the agreement was signed with Russia's United Aircraft Corporation-Rosoboronexport in a meeting this week.
With a payload capacity of 15-20 tons, the aircraft would "meet the requirements of the Indian air force and the Russian air force," a statement by the Indian Defense Ministry said.
Designed to cruise at nearly 500 miles per hour and with a travel range of more than 1,550 miles, the military transport plane is designed to have modern avionics and a glass cockpit.
By some accounts, both sides hope to manufacture 205 such planes.
"The aircraft, with two engines and state-of-the-art features such as fly-by-wire and full authority digital engine control, would have a service ceiling of (7.5 miles)," the Defense News periodical reported about the pending aircraft.
The estimated $600 million deal for the military aircraft has been in the pipeline for several years. Details of the deal were not made public but The Times of India reported that under the terms of the contract "Russia will get 100 such planes initially while India will take 45 of them."
An additional 60 planes, the report added, would be sold to third countries.
It is understood that both countries will equally share the cost of production.
Bent on bolstering its military might and becoming a regional superpower, India announced plans recently to spend up to $30 billion on its military by 2012.
In recent months, also, it inducted a long-range, nuclear-tipped missile into its armed forces, unveiling, also, a defense spending budget spiked by 24 percent since last year.
The moves have Pakistan fretting, with leading officials billing India's drive a "massive militarization."
Boosting its defense artillery, India last week successfully launched a surface-to-surface supersonic missile, marking the first missile to be tested in supersonic speed in steep-dive mode.
In a related development, India pushed to expand defense ties with Poland, discussing possible joint research and development of weapons.
At a visit to New Delhi, Polish Prime Minister Donald Tusk offered to "transfer technology to India for license production of tank recovery vehicles," Defense News reported.
India is said to be considering Polish involvement in its bid to bolster the country's air defense systems.
New Delhi and Warsaw first signed a defense cooperation agreement in 2003.