The UK government has nationalised the defence manufacturer Sheffield Forgemasters to secure the supply of parts that are vital for the Royal Navy’s ships and submarines.

The Ministry of Defence said it would spend £2.6m to acquire the whole of the company, and planned to invest as much as £400m over the next decade to replace critical equipment and infrastructure required for its military production capacity.

The development comes in the latest twist for one of Britain’s oldest companies, which can trace its origins to the 1750s as a small blacksmith’s forge before it became a properly commercial enterprise in 1805.

It has struggled commercially in recent decades as the British steel industry has come under intense pressure from cheaper competitors in countries such as China and India. The coronavirus pandemic added further pressure as oil and gas companies pulled orders and steel processing work also fell away.

However, most of the companies capable of building the reactor pressure vessels for the UK’s nuclear submarines are located in potentially hostile countries such as Russia and China, as well as South Korea. US manufacturers are focusing on providing for their own navy’s vessels.

The takeover will preserve the jobs of just over 600 Sheffield Forgemasters workers, after it cut 95 at the end of last year when faced with the end of its role in the Dreadnought nuclear submarine programme next year.

Sheffield Forgemasters had been reliant for several years on loan guarantees from its big defence customers, including Rolls-Royce, BAE Systems and Babcock International. The guarantees will fall away when the MoD provides it with cash to support its operations.

The deal will complete on 19 August, after the company’s shareholders, including the former chief executive Graham Honeyman and its employees, represented through a trust, agreed to sell to the government. It will continue to be led by its existing management.

The takeover also represents an unusual move for a government led by the Conservative party, which has historically been opposed to nationalisation. However, the prime minister, Boris Johnson, has signalled willingness to take a more interventionist stance to protect British industry.

David Cameron made scrapping an £80m loan to Sheffield Forgemasters among the first acts of his coalition government in 2010, sparking a political furore, as part of a decision to overturn more than £10bn of investment in the UK economy pledged by the last Labour administration.

Steve Turner, Unite’s assistant general secretary for manufacturing, said the takeover was “a sign that government is maybe finally waking up to a crisis of its own making”.

“Critical infrastructure industries like steel function better in public hands and advanced economies like our own need to have stable, secure domestic steel production capabilities to protect our national security interests as well as to compete in global markets,” he said.

The government is also on standby for a potential bailout of Liberty Steel after the collapse of Greensill Capital, a key creditor. Ministers have however said they would prefer waiting to see if the company’s owner, Sanjeev Gupta, can secure a financing package from the private sector.

David Bond, Sheffield Forgemasters’ chief executive, said the agreement would provide a more secure future for the business and its workers.

“Sheffield Forgemasters and its shareholders are not able to fund an investment of this size and so this acquisition marks the culmination of a process, started two years ago, that enables us to be a reliable and secure supplier to defence for the long-term,” he said.

UK defence customers represented the bulk of the firm’s £66m in new orders in 2019, according to its latest accounts. However, Bond added that the company would also seek to build products for offshore wind projects and nuclear power stations, although its focus would be the defence business.

Steve Hammell, the company’s chief financial officer, said it was hopeful of securing work on small modular reactors. Forgemasters has provided technical support to the consortium, led by Rolls-Royce, its largest customer. Rolls-Royce hopes to use the reactors in 16 small power stations around the UK. The project has not yet received the full go-ahead, but Hammell said it could be an opportunity for the company within five years.

Hammell said the company also hoped to take advantage of the government’s desire to use more British steel in projects such as the enormous Dogger Bank offshore windfarm. Forgemasters will try to use its new government links to build the 150-tonne hub castings that sit at the centre of the huge turbines.