"This $8 million investment will produce a qualified rifle design ready for production," Defense Materiel Minister Jason Clare said.
"The Austeyr rifles that our troops use are very effective. This project is about making them even better."
The upgraded rifle will be lighter and better balanced, Clare said. It also will be fitted with NATO-standard Picatinny rails, which will allow additional fittings such as sensors, illuminators, sights and aiming devices, including thermal imaging optics.
The rifle will have an integrated grenade launcher attachment and sight to make it more efficient for use on the battlefield.
The Austeyr F88 -- Australian Steyr AUG rifle -- is an Austrian-designed rifle built under license by Australian Defense Industries, now part of Thales Australia, at its factory in Lithgow, New South Wales state. Rifles for the Australian army have been made at the site for nearly 100 years.
The AUG -- Armee Universal Gewehr -- is a bullpup 5.56mm assault rifle designed in the early 1970s by Steyr Mannlicher, formerly Steyr-Daimler-Puch. It has accurate firing up to 900 feet.
The rifle has been in use with the Austrian army since 1977 and also is standard issue for some state police forces.
Australia adopted the rifle in 1985 and New Zealand also uses the Australian version, importing them from Australia. However, when New Zealand opted the rifle in 1988, the first 5,000 weapons it ordered were manufactured in Austria by Steyr-Daimler-Puch.
Other countries using the Steyr AUG include Argentina, Bolivia, Ecuador, Ireland, Luxembourg, Saudi Arabia, Tunisia and Pakistan. The U.S. Immigration and Customs Enforcement agency also uses a version.
Funding for the Australian upgrade is a part of the $448.6 million LAND 125 program to modernization soldiers' close-combat equipment.
Thales Australia won a contract in October 2009 to provide a special mount for a thermal sight for the Austeyr rifle.
Thales bought 350 thermal weapon sights from a third party and designed and manufactured a mounting mechanism that attaches to the Picatinny rail of the rifle.
Thales is also responsible for life-cycle support of the thermal weapon sight.
Thales makes several variants of the rifle, including the F88C, a carbine fitted with a 407mm barrel, versus 508mm for the normal model. The F88C is issued to personnel operating in extremely close quarters where movement can be restricted and lightness of weapon is essential, such as for soldiers in the cavalry and also paratroopers.
Notable deaths of 2014 [PHOTOS]