Medvedev said the top priority for modernisation would be upgrading Russia's nuclear weapons arsenal.
"The primary task is to increase the combat readiness of our forces. First of all, our strategic nuclear forces. They must be able to fulfil all the necessary tasks to ensure Russia's security," he said.
Russia would go ahead with the plans despite being hit hard by the economic crisis, Medvedev said.
"We now have all the necessary conditions for that [modernisation of armed forces] despite the current financial difficulties," he said.
Efforts to upgrade Russia's military have moved slowly in the past.
Weaknesses in Russian forces, such as shortages of precision weapons and modern communications, were apparent during its conflict with Georgia in August last year.
"That conflict has revealed our flaws,'' Medvedev said, adding that "problems linked with supply of certain weapons and means of communication require a quick action".