Alex Salmond said the work, which will be carried out over the next five years, would make train journeys on the Inverness to Aberdeen line "shorter, more frequent and more comfortable".
The work will include redoubling of the track between Aberdeen and Inverurie, and signalling improvements at Elgin, to boost reliability.
The platforms at Insch and Elgin stations will be extended to accommodate trains with six carriages, and the station at Forres will be relocated, which rail bosses say will help cut journey times. In addition, infrastructure will be put in place to allow for new stations to be built in the future at Dalcross and Kintore.
Mr Salmond said: "I am determined that we continue to seek improvements to Scotland's train infrastructure, ensuring that we have an efficient, reliable and comfortable service for passengers in communities across the country.
"That is why today's announcement is so important - a huge £170 million investment on the Aberdeen-Inverness line that will make journeys shorter, more frequent and more comfortable for those who use this important line regularly.
"These improvements - which will increase the number of trains, improve signalling and lay the infrastructure necessary for new stations - will be welcomed by passengers, who will also be pleased to hear of the service enhancements that will see their timetable improve in the coming weeks.
"This investment is all part of our programme to ensure Scotland has a railway fit for the future and our £5 billion commitment to rail infrastructure and services is addressing decades of neglect on the railways throughout Scotland."
The improvements were revealed at the same time as ScotRail announced added services on its new timetable.
The changes, which come into effect from May, will double the number of weekday trains between Oban and Glasgow and will increase the Aberdeen to Glasgow Sunday service from every two hours to every hour.
There will be additional services between Inverurie and Aberdeen at peak times, and a new service between Ayr and Edinburgh, which will go via Glasgow Central Station. A new Sunday service for Anniesland is scheduled and Glasgow's Anderston station will open on Sundays for the first time.
Steve Montgomery, managing director of ScotRail, said: "We are seeing strong demand for Sunday services between Aberdeen and Glasgow. Adding four express trains in each direction will give people many more journey opportunities throughout the day."
David Dickson, Network Rail acting route managing director for Scotland, said: "Increasing capacity across the network and offering passengers a wider range of services is a key priority for Network Rail and we look forward to working with the Scottish Government to deliver this much-needed enhancement of the line."