Production of the improved version began in July 1940 at Tula and later at factories in Izhevsk and Podolsk.

Other changes were made to simplify manufacturing. The hand guard was now of one-piece construction and the cleaning rod was housed under the barrel. It was a more refined, lighter design incorporating a modified, folding, magazine release. With the removal of the SVT-38 from service, an improved design, the SVT-40, entered production. Production of the SVT-38 was terminated in April 1940 after some 150,000 examples had been manufactured. The rifle had many design flaws, as its gas port was prone to fouling, the magazine would sometimes fall out during use, and it was inaccurate, only being effective up to 600m. The SVT-38 saw its combat debut in the 1939–1940 Winter War with Finland. The sniper variant had an additional locking notch for a see-through scope mount and was equipped with a 3.5×21 PU telescopic sight. The receiver was open-top, which enabled reloading of the magazine using five-round Mosin–Nagant stripper clips. The SVT-38 was equipped with a bayonet and a 10-round detachable magazine.

The SVT-38 is a gas-operated rifle with a short-stroke, spring-loaded piston above the barrel and a tilting bolt, a system that would later be used in the FN FAL. Production began at Tula Arsenal in July 1939 (production at Izhmash began in late 1939). Ambitious production plans anticipated two million rifles per year by 1942.

In 1938, Tokarev's rifle was accepted for production, under the designation SVT-38 with hopes that it would become the new standard issue rifle of the Red Army.

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