The SBU intelligence agency said the probe had exposed former and current high-ranking officials at the Ministry of Defence and managers of an arms supplier.
It said the embezzlement involved a contract for 100,000 mortar shells with weapons-maker Lviv Arsenal in August 2022, just six months into the war.
Payment was made in advance, with some of the funds transferred abroad.
But no arms were ever provided.
The statement said five individuals had been served "notices of suspicion" - the first stage in Ukrainian legal proceedings.
One suspect, the statement said, was detained while trying to cross the Ukrainian border.
The announcement came on Saturday and will have a huge resonance in a country that's dealing with exhaustion after Russia's invasion two years ago.
It also speaks to endemic corruption as a major issue as Ukraine presses its bid to join the European Union and amid a push for new funding and equipment from Washington.
Corruption within the military has been a particularly sensitive issue in Ukraine and a defense minister was dismissed last year over various corruption cases, though he was not alleged to have engaged personally in graft.
