DSME said in October that it was getting close to winning the contract, the first time the company will export submarines. It also is the largest defense contract for any South Korean firm, a report in The Korea Herald newspaper said.
Each submarine will be just more than 200 feet long, displace 1,400 tons, carry a crew of 40 and have eight torpedo tubes.
Delivery for the conventional 209 class diesel-powered vessels is for the first half of 2018.
A report by The Jakarta Post in Indonesia said two submarines will be built in South Korea involving Indonesian state-owned shipbuilder PT PAL. The third ship will be built at PT PAL's facilities in Surabaya, on the northern shore of Java Island.
A DSME statement said the company has been working to finalize the contract with the Indonesian government since 2005. DSME's work with other Southeast Asian countries helped it secure the deal amid tough competition from French, German and Russian shipbuilders.
South Korea operates nine of the 209 class vessels, called the Chang Bogo class, built in conjunction with the original designer and manufacturer Howaldtswerke-Deutsche Werft of Germany. The design is from the late 1960s and the ship was never operated by the German navy.
The 209 was specifically for export and was successful made in partnership with more than a dozen countries and their indigenous shipbuilders, including DSME at its base in Okpo, southern South Korea.
DSME as well as Hyundai Heavy Industries still work with HDW, specifically on an order for 214 class subs, designated the Son Won-II class. The nine ships, improved and upgraded 209 variants, are being built in South Korea. Three entered service in 2007 and from next year the remaining ships will begin entering service.
The Indonesian navy already operates two Project 209/1300 Cakra submarines built by Howaldtswerke-Deutsche Werft in the early 1980s and upgraded by DSME.
DSME's Indonesian submarine contract closes out the year also notable for another major shipbuilding win -- 10 large container ships for Maersk Group that were ordered in February. Each of the vessels will carry 18,000. The group's largest container ship, the Maersk E-class, carries 15,200 containers.
The first of Maersk's the new 1,300-foot ships -- the Tripe E-class -- will be delivered in 2014, with an option for 20 more.