During the next decade, Russia plans to spend $725 billion to modernize the weaponry used by its armed forces and other armed government-paid forces, Deputy Prime Minister Sergei Ivanov said Wednesday.

"There have been no such amounts ever before; we could only dream of them," he was quoted as saying by Defensenews.com.

The number is significantly higher than previous figures posted by the Kremlin. Observers say part of the money will also go into the structural reform of the armed forces, with Moscow planning to radically the cut the number of officers and overall troops to create a more modern and mobile force.

Russian newspaper RBC Daily writes that 20 percent of the $725 billion will be spent on innovative military research projects.

In a bid to allocate that money efficiently, Russian President Dmitry Medvedev reportedly wants to create an agency modeled after the U.S. Defense Advanced Research Projects Agency. A direct response to the launch of the Soviet Sputnik satellite, DARPA was launched in 1958 coordinate and push technological modernization of the U.S. defense portfolio. It reports directly to senior Department of Defense management.

"I think our country also needs an effective organization to work on placing orders for breakthrough research and development in the interests of our defense and security, including promising new research that in some cases can be very risky," Medvedev was quoted as saying by the RBC Daily.

The Kremlin wants to completely overhaul the Russian armed forces and has vowed to replace its Soviet-era equipment. However, Medvedev is unhappy with the domestic industry and has urged firms to step up their product portfolio and internal procedures to become more competitive. It has to be noted, however, that Russia still is one of the world's most successful arms exporters, with Russian-made tanks and helicopters among the best-sold products.

At home, however, things could change soon.

While Russia has relied exclusively on domestic companies to supply arms for its own forces, Moscow has warned that it will buy also from foreign firms in the future.

Russia is locked in negotiations with France over one or several Mistral class helicopter carriers, with the price tag for one vessel reportedly at $380 million.

The costly overhaul of the Russian military comes as forces in Europe face severe budget cuts because of the recession.

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