The government, the largest shareholder in the project, said Sizewell C, in eastern England, will cost around GBP 38 billion ($51 billion) to construct.
The project will also be funded by Canadian pension fund La Caisse, British Gas owner Centrica, Amber Infrastructure and French energy giant EDF.
"It is time to do big things and build big projects in this country again," Energy Secretary Ed Miliband said in a statement.
"Today we announce an investment that will provide clean, homegrown power to millions of homes for generations to come," he added.
The plant, which has been in financial limbo for over a decade, is not expected to start generating electricity until the 2030s.
The projected construction cost of GBP 38 billion exceeds previous official estimates of GBP 20 to GBP 30 billion -- and campaigners have warned that further cost overruns or delays could impact households.
- Energy security -
The final investment decision gives the government a 44.9 percent stake in the project.
Among the new investors in Sizewell C, La Caisse holds a 20 percent stake, Centrica 15 percent and investment manager Amber Infrastructure an "initial" 7.6 percent.
EDF announced earlier this month that it will take a 12.5 percent stake in the project -- down from 16.2 percent ownership the end of 2024.
The UK has refocused on shoring up nuclear power since the start of the war in Ukraine, in the name of energy security and faced with a fleet of ageing power stations.
Prime Minister Keir Starmer's government has also pledged by 2035 to reduce UK greenhouse gas emissions by 81 percent on 1990 levels, under plans to reach net-zero by 2050.
The use of nuclear energy as an alternative to fossil fuels is highly controversial, however, with many environmental groups warning about safety risks and the disposal of nuclear waste.
The plans for Sizewell C have been met with anger by some local residents worried about the impact of the new plant on the town of Leiston in Suffolk.
Once operational, the project will power around six million homes and create around 10,000 jobs, according to the government.
Near to Sizewell C is the Sizewell B nuclear power station which is due to close in 2035 -- and Sizewell A which is in the process of being decommissioned.
EDF is also building the Hinkley Point C nuclear power plant in southwestern England, although it has been plagued by delays and rising construction costs.
The government noted that the construction costs of Sizewell C would be around 20 percent cheaper than Hinkley Point C.
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