The Buffalo is a tracked vehicle using a Leopard 2 tank chassis and was jointly developed for the German and Dutch armies for tank recovery.
Canada obtained 42 Leopard 2 tanks from the Netherlands in 2007 and, under the contract with Rheinmetall, will supply a number of Leopard 2 chassis for the work.
Delivery is forecast for 2013-14.
Rheinmetall said work on the project will be conducted in Germany as well as in Canada by its Rheinmetall Canada subsidiary.
Canada is using the Buffalo ARV in Afghanistan, where its troops are part of the International Security Assistance Force.
The Buffalo ARV features a powerful winch system as well as a combined dozer and stabilizing blade.