19 October 2010 Last updated at 19:08 GMT
The RAF and navy will lose 5,000 jobs each, the Army 7,000 and the Ministry of Defence 25,000 civilian staff.
Axing the Harrier and Ark Royal means no planes will be able to fly from British aircraft carriers until 2019.
But he said the country had to be "more thoughtful, more strategic and more co-ordinated in the way we advance our interests and protect our national security".
There would be no cuts to support for troops in Afghanistan - which is funded separately from the Treasury's special reserve, the prime minister stressed in his statement.
Kinloss doubts But he said he wanted the Ministry of Defence to become more commercially "hard headed" and said it would face "significant challenges" as a result of cuts.
He outlined savings of £4.7bn at the department - including a reduction in civilian staff by 25,000 by 2015. The department will also sell off "unnecessary assets", renegotiate contracts and cut overheads.
He confirmed HMS Ark Royal will be decommissioned four years early and the UK's Harrier jump jets will be axed. Two new aircraft carriers will be built but one would be placed on "extended readiness".
A "large well-equipped" Army would remain - that would amount to 95,500 personnel by 2015 - 7,000 fewer than today, Mr Cameron said.
Tanks would be cut by 40% and heavy artillery 35% - but there would be 12 more Chinooks and communications equipment and more money for unmanned planes, he said.
He also said naval manpower would fall to 30,000 by 2015 and the total number of frigates and destroyers would drop from 23 to 19 by 2020.
'Missed opportunity' But he said the government would procure a fleet of hunter killer Astute class submarines, complete production of six Type 45 destroyers and and start a programme to develop "less expensive, more flexible, modern frigates".
Mr Cameron also vowed to push ahead with replacing Britain's Trident nuclear missile system but said their replacement would be scaled back, with the number of warheads per boat cut from 48 to 40, as part of a £750m package of savings.
He told MPs: "It is a spending review dressed up as a defence review, it has been chaotically conducted, it has been hastily prepared and it is simply not credible as a strategic blueprint for our future defence needs."
BBC defence correspondent Caroline Wyatt said the decision to decommission the Ark Royal immediately and axe the UK's force of Harrier jump jets meant that, until at least 2019, no planes would be able to fly from the new aircraft carriers.
Shadow defence secretary Jim Murphy described the arrangement as "peculiar" and "driven by finance".
He told the BBC: "What's the purpose of an aircraft carrier if not to carry aircraft? And I think to leave our country without a single fixed-wing aircraft able to fly off our aircraft carriers for a decade is a very worrying decision.
"It can't be driven by security needs or strategic needs. No-one based on the security needs of our country would come to the decision that a decade without an aeroplane on an aircraft carrier is the right decision."
Defence Secretary Liam Fox told the BBC there had been periods in the past - before the Harriers came on stream - when the UK had aircraft carriers with no planes to fly on them. Dr Fox said there would be a range of helicopters and unmanned aircraft which would still be able to fly from them.
At least one of the new carriers will be redesigned so that it can deploy normal fighter aircraft that do not need a Harrier-style vertical lift capability - allowing strike fighter aircraft from allies like France to land on UK aircraft carriers, and vice versa.
Defence review: Cameron unveils armed forces cuts
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David Cameron: "We expect to continue with the 4th largest military budget in the world"
Harrier jump jets, the Navy's flagship HMS Ark Royal and planned Nimrod spy planes are to be axed and 42,000 MoD and armed forces jobs cut by 2015.
Unveiling the strategic defence review, PM David Cameron said defence spending would fall by 8% over four years.The RAF and navy will lose 5,000 jobs each, the Army 7,000 and the Ministry of Defence 25,000 civilian staff.
Axing the Harrier and Ark Royal means no planes will be able to fly from British aircraft carriers until 2019.
Mr Cameron opened his Commons' statement by denying the review was simply a "cost saving exercise", saying it was a "step change in the way we protect this country's security interests".
He said Britain would still meet Nato's target of spending 2% of GDP on defence and would continue to have the fourth largest military in the world and "punch above its weight in the world".But he said the country had to be "more thoughtful, more strategic and more co-ordinated in the way we advance our interests and protect our national security".
There would be no cuts to support for troops in Afghanistan - which is funded separately from the Treasury's special reserve, the prime minister stressed in his statement.
Kinloss doubts But he said he wanted the Ministry of Defence to become more commercially "hard headed" and said it would face "significant challenges" as a result of cuts.
He outlined savings of £4.7bn at the department - including a reduction in civilian staff by 25,000 by 2015. The department will also sell off "unnecessary assets", renegotiate contracts and cut overheads.
He confirmed HMS Ark Royal will be decommissioned four years early and the UK's Harrier jump jets will be axed. Two new aircraft carriers will be built but one would be placed on "extended readiness".
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KEY POINTS
- Harrier jump jet retired
- Nimrod spy plane cancelled
- 5,000 RAF personnel axed over five years
- 5,000 Navy personnel cut
- 7,000 army personnel cut
- 25,000 civilian MoD staff axed
- Trident replaced but £750m savings from fewer warheads
- Two aircraft carriers saved, but one will not enter service
The decision to axe the replacement Nimrod MRA4 reconnaissance planes - a project Mr Cameron said had cost more than £3bn and was more than eight years late - puts the future of RAF Kinloss, which employs 1,500 people, in doubt. The future of nearby RAF Lossiemouth remains uncertain.
Mr Cameron acknowledged there would be changes but said some RAF bases were "likely to be required by the Army, as forces return from Germany".A "large well-equipped" Army would remain - that would amount to 95,500 personnel by 2015 - 7,000 fewer than today, Mr Cameron said.
Tanks would be cut by 40% and heavy artillery 35% - but there would be 12 more Chinooks and communications equipment and more money for unmanned planes, he said.
He also said naval manpower would fall to 30,000 by 2015 and the total number of frigates and destroyers would drop from 23 to 19 by 2020.
'Missed opportunity' But he said the government would procure a fleet of hunter killer Astute class submarines, complete production of six Type 45 destroyers and and start a programme to develop "less expensive, more flexible, modern frigates".
Mr Cameron also vowed to push ahead with replacing Britain's Trident nuclear missile system but said their replacement would be scaled back, with the number of warheads per boat cut from 48 to 40, as part of a £750m package of savings.
Continue reading the main story
"Two new aircraft carriers - but no planes to fly off them for nine years" is not the headline the government wanted, but may be what the public remembers.
The debate over the carriers illustrates the difficulties the government faces in trying to make sense of the last government's legacy and reshaping the armed forces for the future.
In the end it would have been more expensive to cancel the carriers than build them. To pay for the new Joint Strike Fighters that will use them, the government had to sacrifice the Harrier fleet.
Labour left a £38bn black hole in the MoD's budget. Cuts in the armed forces were inevitable. The real test will be whether Britain has the capabilities to meet the threats of the future.
The reality is smaller armed forces and "capability gaps", but even after the cuts Britain will still be the world's fourth biggest spender on defence.
Had this review been driven by strategy alone, the outcome would have been different - but the government has had to cut its cloth to the current financial situation.
"Two new aircraft carriers - but no planes to fly off them for nine years" is not the headline the government wanted, but may be what the public remembers.
The debate over the carriers illustrates the difficulties the government faces in trying to make sense of the last government's legacy and reshaping the armed forces for the future.
In the end it would have been more expensive to cancel the carriers than build them. To pay for the new Joint Strike Fighters that will use them, the government had to sacrifice the Harrier fleet.
Labour left a £38bn black hole in the MoD's budget. Cuts in the armed forces were inevitable. The real test will be whether Britain has the capabilities to meet the threats of the future.
The reality is smaller armed forces and "capability gaps", but even after the cuts Britain will still be the world's fourth biggest spender on defence.
Had this review been driven by strategy alone, the outcome would have been different - but the government has had to cut its cloth to the current financial situation.
The life of the current Trident submarines would also be extended, with the final spending decision on their replacement delayed until 2016 - after the next general election.
Labour leader Ed Miliband said the review was a "missed opportunity".He told MPs: "It is a spending review dressed up as a defence review, it has been chaotically conducted, it has been hastily prepared and it is simply not credible as a strategic blueprint for our future defence needs."
BBC defence correspondent Caroline Wyatt said the decision to decommission the Ark Royal immediately and axe the UK's force of Harrier jump jets meant that, until at least 2019, no planes would be able to fly from the new aircraft carriers.
Shadow defence secretary Jim Murphy described the arrangement as "peculiar" and "driven by finance".
He told the BBC: "What's the purpose of an aircraft carrier if not to carry aircraft? And I think to leave our country without a single fixed-wing aircraft able to fly off our aircraft carriers for a decade is a very worrying decision.
"It can't be driven by security needs or strategic needs. No-one based on the security needs of our country would come to the decision that a decade without an aeroplane on an aircraft carrier is the right decision."
<div class="warning"> <img class="holding" src="http://news.bbcimg.co.uk/media/images/49571000/jpg/_49571156_jex_842368_de27-1.jpg" alt="Ed Miliband" /> <p><strong>Please turn on JavaScript.</strong> Media requires JavaScript to play.</p> </div>
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Ed Miliband: "It has been chaotically conducted, it has been hastily prepared"
At least one of the new carriers will be redesigned so that it can deploy normal fighter aircraft that do not need a Harrier-style vertical lift capability - allowing strike fighter aircraft from allies like France to land on UK aircraft carriers, and vice versa.
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