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Fragment-based drug discovery, in which molecular fragments are assembled into new molecules with desirable biochemical properties, has achieved great success. However, many fragment-based molecule generation methods show limited exploration beyond the existing fragments in the database as they only reassemble or slightly modify the given ones. To tackle this problem, we propose a new fragment-based molecule generation framework with retrieval augmentation, namely *Fragment Retrieval-Augmented Generation* (*f*-RAG). *f*-RAG is based on a pre-trained molecular generative model that proposes additional fragments from input fragments to complete and generate a new molecule. Given a fragment vocabulary, *f*-RAG retrieves two types of fragments: (1) *hard fragments*, which serve as building blocks that will be explicitly included in the newly generated molecule, and (2) *soft fragments*, which serve as reference to guide the generation of new fragments through a trainable *fragment injection module*. To extrapolate beyond the existing fragments, *f*-RAG updates the fragment vocabulary with generated fragments via an iterative refinement process which is further enhanced with post-hoc genetic fragment modification. *f*-RAG can achieve an improved exploration-exploitation trade-off by maintaining a pool of fragments and expanding it with novel and high-quality fragments through a strong generative prior.