Britain's oldest nuclear submarine HMS Vanguard is to have its reactor refuelled at a cost of £120 million after a test reactor operating in Scotland was found to have a small internal leak of radiation, Philip Hammond has told the Commons.
A further £150 million will be spent on equipment to ensure other nuclear submarines can also be refuelled if needed.
The Defence Secretary said the test nuclear reactor in Dounreay had been run for longer and at higher intensity than the reactors installed on the Vanguard and Astute class submarines to identify any use or age-related restrictions in the design.
He told MPs today that in January 2012, radiation was found in the cooling water around the test reactor - something which would not normally happen.
A microscopic breach in metal cladding around the test reactor's core is thought to be to blame but Mr Hammond said it was not clear how this came about.
The refuelling of HMS Vanguard will take place during its next scheduled "deep maintenance period", due to last three and a half years from 2015.
Mr Hammond said: "This is the responsible option. Replacing the core on a precautionary basis at the next opportunity, rather than waiting to see if the core needs to be replaced at a later date which would mean returning Vanguard for a period of unscheduled deep maintenance, potentially putting at risk the resilience of our ballistic missile submarine operations."
Mr Hammond told MPs there was no sign that the problem had ever occurred in one of the reactors installed on a British submarine and emphasised the confidence of the Ministry of Defence that such a problem would be immediately detected.
And he moved to reassure the Commons that the fault in the reactor at Dounreay did not present any safety risk.
The Defence Secretary said: "These low levels of radioactivity are a normal product of a nuclear reaction that takes place within the fuel but they would not normally enter the cooling water.
"This water is contained within the sealed reactor circuit and I can reassure the House there has been no detectable radiation leak from that sealed circuit.
"Indeed, against the International Atomic Energy Agency's measurement scale for nuclear-related events this issue is classed Level 0, described as 'below scale - no safety significance'."
Mr Hammond said the test reactor had been shut down after the fault was detected and both the independent Defence Nuclear Safety Regulator and Scottish Environmental Protection Agency had been informed.
The test reactor was restarted in November 2012 and had continued to operate safely, he said. It is due to be decommissioned in 2015 but Mr Hammond said this could be brought forward if there are lessons to be learned about the breach.
Mr Hammond said a decision on refuelling the next oldest submarine, HMS Victorious, would not need to be taken until 2018.
To keep the option open, £150 million will need to be spent to preserve the capability in Britain of carrying out the task.
Mr Hammond said: "This will include investment at Devonport and at the reactor plant at Raynesway in Derby ... the total cost of this investment is still being scoped but is of the order of £150 million.
"These costs, £270 million in total, will be met from existing provision for financial risk in the submarine programme budget. They represent less than 10% of that risk provision and will not impact on the more than £4 billion of contingency we are holding in the overall defence equipment plan."
Mr Hammond said the implications of the problem on the Astute class, which use similar reactors, would be subject to "further analysis".
But he said because the Astute submarines were only just entering service, any decisions on refuelling them "will not be needed for many years".
New submarines for the Trident replacement programme, known as the Successor submarines, will not be affected by the problem.
Mr Hammond said: "Refuelling HMS Vanguard does not enable us to further extend the overall life of the submarine, which is limited by a number of factors other than the age of the reactor.
"Nor do they have any implications for our confidence in the reactor we are developing for the Successor submarine, which is based on a different design."
In the Lords, former chief of naval staff Lord West of Spithead congratulated the Government on its actions.
The Labour peer said that since 1968 ballistic missile submarines deployed in the North Atlantic had proved "our ultimate insurance policy".
Successive governments and the Royal Navy had ensured they had operated safely with continual operational readiness.
"This announcement continues that tradition. Clearly there is no risk to anyone at all.
"Safety is paramount and the Government has ensured that looking to the future they will maintain continuous at-sea deterrence and I congratulate them on this decision."
Lord West said this was a "stark example of why we need four boats to maintain continuous at-sea deterrence" and there should be no delay in introducing the next "replacement deterrent submarines".
Defence minister Lord Astor of Hever, who had repeated the statement to peers, said safety was always uppermost in the minds of ministers.
Nuclear powered submarines remained the best way to deliver the nation's nuclear deterrent and the "ultimate guarantor" of security.
He said the decision on the four boats question would be made in 2016 and there was no delay in the programme.
Former chief of the defence staff and independent crossbencher Lord Boyce described the proposed refuelling as an "entirely sensible course of action".
But he said the re-fit length should not be extended, potentially compromising the "operating cycle which allows us to maintain continuous at sea deterrence".
Lord Astor assured him that the decision to refuel "will not affect our posture and can be contained within the re-fit timescales".
It was a "pre-cautionary measure timed to coincide with the planned re-fit period precisely" and nor would it affect the successor programme.
Labour former defence secretary Lord Robertson of Port Ellen said the Government was right to "err on the side of caution".