US military expenditure rose 9.7 per cent last year to $607bn, accounting for 42 per cent of total global arms spending, the report said.
France overtook Britain to become the world's third biggest arms spender while Russia climbed to fifth place from seventh in 2007.
1. US - $607bn
2. China - $84.9bn*
3. France $65.8bn
4. UK - $65.3bn
5. Russia - $58.6bn*
6. Germany - $48.6bn
7. Japan - $46.3bn
8. Italy - $40.6bn
9. Saudi Arabia - $38.2bn
10. India - $30bn
Other countries such as India, Saudi Arabia, Iran, Israel, Brazil, South Korea and Algeria also contributed substantially to the total increase.
Arms shipments rose 4 per cent worldwide from 2007 and 45 per cent higher than in 1999, the report said.
The security situation in Afghanistan was likely to worsen and warned that expectations for the US strategy for the region may be too high, according to Sipri.
"Regrettably, Afghanistan's fate over the next few years still looks to be finely balanced. Progress will continue to be slow, flawed and fragile," the report said.
About 8,400 operational nuclear warheads were held in global military stockpiles, according to Sipri estimates.
Of those, almost 2,000 were kept on high alert and capable of being launched within minutes.
About 23,300 nuclear weapons were held in the arsenals of eight states: the United States, Russia, China, Britain, France, India, Pakistan and Israel, the report said.