Shares in the FTSE 100-listed group rose nearly 2% on the deal, which comes after BAE had warned that profits would be hit if the negotiations dragged on. BAE reports annual results tomorrow.
Discussions, involving governments of both countries, hinged on how much "price escalation" needed to be factored in given that an initial understanding was signed in 2005.
The price had been reported as £4.4 billion in 2007 and the newly-agreed value is likely to be more than that, though various other parts of the deal have also changed since then. BAE did not disclose price details.
In a stock market announcement today, the company said the two governments had now agreed terms that were "broadly consistent with the group's prior trading outlook for 2013". Cash settlement is expected to begin during the early part of this year.
Chief executive Ian King said: "This is an equitable outcome for all parties. I am pleased that we have been able to conclude this negotiation which builds on our long standing relationship with this much valued customer."
In December, BAE revealed that a separate multi-billion pound deal to sell 60 Typhoon jets to the United Arab Emirates (UAE) had collapsed, despite Prime Minister David Cameron pressing the case for it during a Middle East visit.
It also said at the time that it was still in negotiations with Saudi Arabia over the Eurofighter Typhoon deal.