The 350MW wood chip-fuelled plant, which will be based in Port Talbot, is expected to generate enough electricity to power half of the homes in Wales.
Energy Secretary John Hutton approved plans for the £400m plant from London-based firm Prenergy Power Ltd on Wednesday.
Mr Hutton said: 'This will be the biggest biomass plant in the world, generating enough clean electricity to power half of the homes in Wales.
'It joins eight major renewables projects already given the green light in the past 12 months alone and is another important step towards the low carbon economy envisaged by the Prime Minister.'
The facility is expected to contribute around 70% of the Welsh Assembly's 2010 renewable electricity target once it is completed in 2010, and the plant is expected to have a 25-year lifespan.
The Government said the wood fuel is expected to come from sustainable forests in the US and Canada.
Prenergy said the plant will help to combat climate change and will have significant advantages compared to other sources of renewable energy because the plant can be operated 24 hours a day throughout the year.
The company said the use of wood chip as a fuel for electricity generation 'is recognised as being carbon free'.
However, local people have campaigned against the plant and nearly 700 put their name to a petition which was presented to the local authority, Neath Port Talbot County Borough Council, earlier this year.
The biomass plant is the latest in a series of renewable energy projects that have been approved by ministers at the Department for Business, Enterprise and Regulatory Reform.
Other schemes include the Walney wind farm off the coast of Cumbria, which was given the go-ahead earlier this month, the London Array and the £28m Wave Hub off the coast of Cornwall.