The company, known as British Aerospace until 1999, has £21 billion in sales.
This means it has become the first non-American company to top the list.
The company does more than half of its business with the US, including a deal with the Pentagon for mine-resistant vehicles to be used in Iraq and Afghanistan.
The US has also placed a £483 million order for M2 Bradley fighting vehicles.
Also, last year Britain was the biggest arms seller in the world, ahead even of the US, accounting for a THIRD of all global arms exports.
Taking the last five years into account, Britain is second behind the US, with Russia in third.
Britain's BAE Systems tops international list of biggest arms groups
By Karl West
12th April 2010
A British company has become the largest arms dealer in the world, with £21billion in weapons sales.
Defence group BAE Systems is the first company outside the U.S. to reach the position, thanks to a deal with the Pentagon for mine-resistant vehicles to be used in Iraq and Afghanistan.
According to the Stockholm International Peace Research Institute, a defence think tank, the former British Aerospace group's arms sales are ahead of American market leaders Lockheed Martin and Boeing.
The report reveals BAE's U.S. subsidiary was alone responsible for 61.5 per cent of the group's arms sales and around 58.5 per cent of total group sales.
This demonstrates BAE's increasing reliance on orders for conventional weapons as the U.S. cuts back on its nuclear arsenal.
Susan Jackson, arms industry expert at Sipri, said: 'The company is based in the UK, but does more than half of its business in the U.S.
'BAE really shows the increasing internationalisation of the arms industry and the attractiveness of the U.S. market.'
The figures apply to 2008, the most recent year available to the research unit.
The only other British company in the top 20 was Rolls Royce, which notched up arms sales of around £3billion in the same year.
BAE is one of the country's biggest exporters of high-tech military equipment, including the Eurofighter-Typhoon fighter jet.
However it has struggled to shake off the damage inflicted on its reputation by long-running bribery and corruption investigations.
In February the company agreed to pay £280million in criminal fines to the U.S.
Justice Department and Britain's Serious Fraud Office over allegations it paid many millions of pounds in kickbacks to officials in Saudi Arabia, Africa and eastern Europe in return for lucrative arms contracts.
The world's top 100 arms companies had total sales of £ 250billion in 2008, up more than £32billion from the previous year.
BAE won contracts worth billions of pounds for Bradley tanks and a range of mine-protected armoured vehicles.
The group also raked in many hundreds of millions of pounds selling military kit such as combat helmets, emergency escape windows for armoured vehicles, thermal weapon sights for rifles and machine guns, howitzers and missile launching canisters for Tomahawk missiles for the U.S. Navy.
It also sells lightweight loadcarrying equipment for ground troops including bulletproof vests, backpacks and hydration systems.
However last year the firm lost out to American rival Oshkosh over a £2billion U.S. Army contract for mine-resistant vehicles.
It was also beaten to a £4billion British Army armoured car contract by General Dynamics.
UK is world's biggest arms dealer
Big export: The Eurofighter (AFP: Carl de Souza, file photo)
Britain was the world's biggest arms seller last year, accounting for a third of global arms exports, the Government's trade promotion organisation said.
UK Trade and Investment (UKTI) said British arms exporters had added $20.1 billion in new business last year, giving them a larger share of global arms exports than the United States.
"As demonstrated by this outstanding export performance, the UK has a first-class defence industry, with some of the world's most technologically sophisticated companies," Minister for Trade and Investment Digby Jones said.
UKTI said the British figures were boosted by orders for Eurofighter Typhoon jets from Saudi Arabia, the world's biggest arms buyer, which imported $32.8 billion in weapons over the last five years.
The United States still tops the world for the last five years with $66.7 billion in total arms exports.
Britain was second with $56.1 billion and Russia third with $35 billion, it said.
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