While prosthetics have improved in recent years, much of the development work has been done on legs rather than replacements for lost arms and hands. This is because of the formidable engineering challenges of reproducing the co-ordinated movement of human hands and fingers.
Currently, officially approved designs for replacement arms are often based around split metal hooks - a design first drawn up in 1912.
By contrast, the Deka Arm has been designed to resemble real limbs as much as possible.
"It was designed to produce near-natural upper extremity control to injured people who have suffered amputations," Darpa spokesmanJustin Sanchez told Reuters.
The device uses electrodes which detect tiny muscle twitches wearers make as they learn to control the 10 different movements the prosthetic arm can carry out.
"This prosthetic limb system can pick up objects as delicate as a grape, as well being able to handle very rugged tools like a hand drill," said Mr Sanchez.
The US Federal Drug Administration, which oversees the prosthetic approval process, said the Deka Arm is designed for those who lost their arm at the shoulder, mid-upper arm or mid-lower arm.
The Deka Research firm behind the Arm was founded by renowned engineer Dean Kamen who invented the Segway scooter and many other devices.