SYDNEY, April 26 (Reuters) - Australia said on Wednesday it would start domestic manufacture of guided missiles by 2025, two years sooner than expected, in a wide-ranging shakeup of defence arrangements to focus on long-range strike capability.

On Monday, the Labor government said it accepted the recommendations of a defence review that said China had launched the largest military buildup of any country since the end of World War Two without transparency, and major power competition had "potential for conflict" in the Indo Pacific.

The timetable for domestic manufacture of guided weapons, originally set for 2027, will be hastened to within two years by allocating A$2.5 billion to the project, Defence Minister Richard Marles said in media interviews.

That represents a more than doubling in funding, which is being diverted from cancelled defence projects.

"That does radically shift the timeframe forward in terms of a manufacturing capability," Marles said in a television interview with Nine on Wednesday.

A further A$1.6 billion will be spent on buying long‑range strike systems from overseas within two years, he said.

The government was already in talks with missile manufacturers Raytheon (RTX.N) and Lockheed (LMT.N) about establishing production in Australia, Marles added.

Discussions were also being held with Kongsberg (KOG.OL), the Norwegian manufacturer of the naval strike missile Australia had already agreed to purchase, he said.

Pat Conroy, the minister for defence industry, said the review recommended acquiring Kongsberg's joint strike missile which would "allow us to look at manufacturing the Strike Missile family of missiles in Australia".

Australia will work more closely with its security ally, the United States, while boosting diplomacy in the region to deter conflict and step up defence ties with India, Japan, South East Asian nations and Pacific islands, the review said.