Australia is set to get U.S. nuclear submarine technology as part of a new security partnership that also includes Britain.
On Wednesday, the three countries announced the initiative, dubbed "AUKUS".
The leaders say it aims to preserve peace and stability in the Indo Pacific.
None of them mentioned China - but Beijing's influence over the region is growing.
"Today, we're taking another historic step to deepen and formalize cooperation among all three of our nations, because we all recognize the imperative of ensuring peace and stability in the Indo-Pacific over the long term."
The first collaboration will be to develop nuclear powered submarines for the Australian navy.
Leaders stressed the submarines will be powered by nuclear reactors, not armed with nuclear weapons.,,
And would allow the Australian navy to operate more quietly, for longer periods, and provide deterrence across the Indo-Pacific.
Australian Prime Minister Scott Morrison:
"The future of the Indo-Pacific will impact all our futures. To make these challenges, to help deliver the security and stability our region needs, we must now take our partnership to a new level.
"But let me be clear. Australia is not seeking to acquire nuclear weapons or establish a civil nuclear capability, and we will continue to meet all our nuclear nonproliferation obligations."
Britain's Prime Minister Boris Johnson called it a momentous decision for Australia to acquire the technology.
He said it would make the world safer.
Senior Biden administration officials who briefed reporters ahead of the announcement said the move was not aimed at countering Beijing.
However, Washington and its allies have been looking for new ways to push back against Beijing's growing power and influence.
China's Washington embassy reacted to the new partnership saying that countries should not build exclusionary blocs and accused them of having a Cold War mentality.