Unite union warned that the Armed Forces would receive a poorer service (Picture: PA).
A privatisation deal will see Capita take over operations at 53 fire stations in the UK and at Ministry of Defence (MOD) sites including Cyprus and the Falkland Islands.
The contract has been signed more than a year after the deal was first mooted following a protracted legal battle with rival Serco over the deal.
Serco launched a legal challenge against the MOD last July over the proposed deal, but has now accepted a £10 million settlement and withdrawn its challenge.
The 12-year contract, worth £525 million, is understood to be one of the largest outsourcing contracts handed out by the Government over the past 18 months.
It marks a major step in Capita's turnaround after the contractor saw profits and revenues dive in 2018.
Labour's Shadow Defence Secretary Nia Griffith said the deal "beggars belief" as Capita "has made a total mess of Army recruitment".
Meanwhile, the Unite union warned that the Armed Forces would receive a "poorer, more fragmented service".
Gail Cartmail, Unite assistant general secretary, said: "Awarding the firefighter contract to Capita, rather than retaining it in-house, smacks of a desperation by ministers to prop up the under-fire outsourcer and avoid another Carillion-style collapse.
"Ultimately the losers will be our Armed Forces who will receive a poorer, more fragmented service and the dedicated fire and rescue professionals who now face the prospect of cuts as Capita looks to turn a quick profit from an essential service."
Capita said the contract will also involve investment into new technology, new fire engines and other equipment designed to make firefighting easier and safer.
The contractor will also construct and manage a new centralised facility to train firefighters at its fire service college in Gloucestershire.
Capita has told Forces News it will employ civilian firefighters but RAF firefighters will remain working with the RAF.
Jon Lewis, Chief Executive Officer of Capita, said: "This contract is a measure of the confidence and trust government has in Capita’s ability to deliver critical public services, and underlines our drive to build on the strengths of our existing relationship with Government."
An MOD spokesperson said: “Following a competitive bidding process, we can confirm Capita has been awarded the contract to manage Defence Fire and Rescue services.
“This project will create a more modern and agile fire and rescue service for defence, while improving safety for firefighters and delivering significant savings.”