Russian President Mr Medvedev said the primary task would be to "increase the combat readiness of [Russia’s] forces, first of all our strategic nuclear forces".
Explaining the move, he cited concerns over Nato expansion near Russia’s borders and regional conflicts.
Last year, the Kremlin set out plans to increase spending on Russia’s armed forces over the next two years.
Russia will spend nearly $140bn (£94.5bn) on buying arms up until 2011.
While this has been made easier while oil revenues were increasing in recent years, correspondents say, the new announcement is a surprise.
But analysts say the brief war in Georgia exposed problems with outdated equipment and practices within Russia’s armed forces and led to calls for military modernisation.
Mr Medvedev said the move was necessary in response to the current military situation in the world, says the BBC’s James Rodgers in Moscow.
Russia has long been angered by Nato’s post-Cold War expansion and by the United States’ plans to place elements of a missile defence system in parts of Eastern Europe, our correspondent adds.