The Ariane 6 satellite-carrying rocket launcher is due to take its maiden voyage in 2020, and is an update to the company's Ariane 5 which first launched in 1998.
The new system is expected to launch 12 rockets per year to an altitude of 36,000 kilometres (22,000 miles) and has partners from 12 European countries.
Alain Charmeau, president of Airbus Safran Launchers, said the contract showed the partners were determined to create "a launcher just as reliable, more competitive and adapted to the evolution of the space market that is in the midst of transformation."
The decision to roll out the project was taken at a ministerial meeting in December in Luxembourg, with Europe keen to remain competitive with America's SpaceX.
The contracts signed on Wednesday "cover all development work on Ariane 6 and its launch base," ESA said in a statement, including 680 million euros for preliminary development up to mid-2016.
Overall, Ariane 6 is expected to cost three billion euros, with additional funds coming from private industry.
Airbus Safran Launchers said the system is slated to reach "full operational capacity" in 2023 under the deal.
Contracts were also signed with another company, European Launch Vehicle, to develop its smaller Vega C launcher for a 2018 debut at a cost of 395 million euros.
"These contracts will allow the creation of a whole family of highly competitive European launchers for the global market," said Jan Woerner, director-general of ESA.
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