Deepti Electronics and Electro-Optics, based in Bangalore, will supply the devices, a report by the BangaloreMirror.com newspaper said.
Arjun tanks are fitted with French-made manual thermal imagers whereby the tank's navigator must constantly view a monitor or view-finder to locate targets, M.R. Sheshadri, a director of Delopt, said.
Viewing monitors in a moving battle tank is difficult at the best of times, he said.
"By the time the information is passed on to the gunner, the target would have escaped," said Sheshadri, a former scientist with the Indian government's Defense Research and Development Organization.
"With the thermal imager, the navigator can track the enemy but he cannot lock on to it for that perfect strike."
Delopt's automatic tracker also is designed as a line replacement unit -- it's one complete package that can be quickly removed for repairs or for replacement.
A prototype of the device -- five years in development -- was successfully tested recently on Arjun tanks in the Pokhran test range, in the state of Rajasthan. A slightly modified version of the device will be handed over to the army in about a month, the Bangalore Mirror report said.
During the trials, it detected fighter aircraft and missiles at a distance of 15-18 miles.
Although the tracker can locate a number of targets, it can lock on to only one target at a time.
"We're working to incorporate a multiple-target engaging facility," Sheshadri said.
Delopt won the contract through a tender put out by the DRDO.
Around 50 of the Mark I Arjun tanks are in use, with the Mark II version undergoing trials this year.
In May 2010, the army placed an order for another 124 units on top of the original order of 124 of the controversial tank that had been on the drawing board for more than 35 years.
The current trials of the Mark II will include firing of the Israeli LAHAT missile, which has a range of 4-5 miles, the Press Trust of India reported in October.
The Arjun's 120mm rifled main turret gun can fire the Israeli-made laser-homing anti-tank guided missile LAHAT, first in service in Israel in 1992 and was designed primarily for the Merkava tanks.
"Once Arjun Mark II comes out successfully through the integrated testing in June next year (2012), the production of the latest version of Arjun tanks will start in the Heavy Vehicles Factory," a DRDO source told PTI.
The Arjun is made by Heavy Vehicles Factory in the specifically military manufacturing town of Avadi -- an acronym for Armored Vehicles and Ammunition Depot of India.
Avadi is a coastal town of around 250,000 and about 15 miles from Chennai on the southeastern tip of India.
The Mark II is being developed by the Combat Vehicles Research and Development Establishment and will be in use from 2014.