The PTS has been in service since 1993 at the Submarine Training and Systems center at the military base in Stirling, Western Australia.
The system comprises subsystems for simulating propulsion control a vessel control.
Personnel receive training in propulsion, maneuvering, power conversion and distribution and auxiliary systems.
"By adopting the latest Thales simulator technology, the upgrade will incorporate improvements to the PTS to address obsolescence and fidelity issues, bringing it up to date with the current configurations of the actual submarines," a statement from Thales said.
Thales also supplies and supports the sonar suite, towed array, periscope visual system, communications mast and other key sensor supports systems for the Collins submarine.
"This contract is a prime example of how we work closely with the customer to deliver low-risk, cost-effective upgrade solutions that will enable the navy to continue to train their Collins crews for many years," Thales Australia Chief Executive Chris Jenkins said.
The Australian work has less risk because Thales will draw upon its work on similar submarine upgrades in the United Kingdom, the Thales statement said.
Under another recently signed contract, Thales is upgrading the submarines' periscopes.
Apart from military contracts, Thales Australia works in the commercial sectors ranging from air traffic management to security systems and services. It employs around 3,300 people at more than 35 sites across the country and had revenues of more than $962 million in 2011.
The Collins class consists of six diesel-electric submarines built by Australian Submarine Corp. in Australia from 1990-2003. The class takes its name from Australian Vice Admiral John Augustine Collins who served in World War I and World War II.
Australia plans to decommission the vessels by 2025 and has started procurement for the next generation submarines.
The Thales win comes after the navy announced that its recently acquired amphibious ship Choules suffered technical problems that halved propulsion power.
Choules was built by Swan Hunter in northern England and named after Largs Bay in Scotland. It entered service with the British navy in 2006 but was sold surplus to naval requirements in 2011.
The 17,637-ton Choules -- named after named after Australian Chief Petty Officer Claude Choules -- is around 577 feet long, has room for two large helicopters and is capable of carrying 150 light trucks and 350 troops.
A statement by the Australian navy said Choules was forced to return to Sydney and not continue to Queensland to support Exercise Hamel in the Shoalwater Bay Training Area.
The defect was located in one of the six transformers which form part of the ship's propulsion system.
"This reduced the ship's propulsion power by 50 percent," a navy statement said. "The ship's commanding officer made the safe and prudent decision to return to Sydney in order to have the defect rectified."