He said Russia would make the modernization of its nuclear deterrent and Armed Forces a priority in light of the recent military conflict with Georgia. Moscow launched a five-day military operation "to force Georgia to peace" in response to an attack by Georgian forces on South Ossetia on August 8.
"A guaranteed nuclear deterrent system for various military and political circumstances must be provided by 2020," Medvedev told a meeting with commanders of military districts during the Center-2008 military exercises at the Donguz testing range in the Orenburg Region.
"We must ensure air superiority, precision strikes at land and sea targets, timely deployment of troops. We are planning to launch large-scale production of warships, primarily, nuclear submarines with cruise missiles and multi-purpose attack submarines," Medvedev said.
"We will also build an air and space defense network," he added.
Medvedev ordered military commanders to prepare an action plan for implementing the upgrades by December this year.
Russia is about to adopt a new military doctrine which aims to transform the Armed Forces into a mobile and effective military force. Their structures will be 'optimized' through the use of combined arms units performing similar tasks.
The Russian armed forces will be slimmed down to one million personnel by 2013, but the transition to a fully professional army will not happen at least until 2030, mainly due to fiscal restraints.
Russia's defense budget is believed to be around 25 times less that that of the United States, but the country's military expenditure has been steadily growing in the past few years.
Russia's Defense Ministry has said it will spend around one trillion rubles ($40 bln) of federal budget funds in 2008, 20% more than in 2007, and that in 2008-10 military spending would account for 15.5-16% of total federal budget spending.