The funds will be used to build up to eight Arctic/Offshore Patrol Ships, the navy said. In addition to more than $3 billion in acquiring the vessels, another $4.5 billion will be needed to maintain them over an expected 25-year lifespan.
International efforts to flag ownership of parts of the Arctic has heated up in recent years as Arctic ice melts, offering numerous opportunities including alternative maritime routes.
Canada is keen to stamp its sovereignty on the area it sees as its own amid frequent challenges from Russia. It has bolstered and extended its military presence but is only now beginning to boost its forces.
In the current and future security environment, Canada must have effective tools for exercising control of Canada's Exclusive Economic Zones, the 200-nautical-mile limit in all three oceans, particularly the Arctic, the Canadian navy said.
The navy ordered new ships to enable it to effectively patrol the Arctic even when iced. At present navy craft can only navigate the Arctic waters when there's no ice.
Denmark, Russia and the United States have also boosted presence in the Arctic, introducing more ice-breaking vessels that can ply the frozen sea.
The ships would be built in Canada after an initial design and consultation period of at least two years but would likely be in service by the end of 2013.
Canada's multipurpose, ice-capable offshore patrol ship "will enhance Canada's ability to enforce its right, under international law, to be notified when foreign ships enter Canadian waters," the navy said.
Canada plans to conduct more sea-borne surveillance to guard against what it sees as frequent Russian intrusions.
"The Arctic is part of us. Was. Is. And always will be," former Foreign Minister Lawrence Cannon told Russian hosts when he visited Moscow in October last year.
The Pravda newspaper complained Russia was painted as "the primary aggressor" in Western media reports on the international competition for control in the Arctic.
The Canadian navy said the new patrol ships would need to be built to negotiate all-year the Arctic's icy waters, Newfoundland, the northwest coast of the Queen Charlotte Islands as well as the Lawrence River and berth at Quebec City. All ships will be armed.
Last year's budget cuts raised speculation that Ottawa may ditch or drastically cut the Arctic ships program.
At one point the government considered reducing the caliber of the main gun from 76mm or 57mm to 25mm, procuring less powerful engines and limiting the number of vessels to six.