The new 72MW capacity station in Belvedere will be fuelled by waste which would currently go to landfill sites.
Planning consent follows a third application submitted by Riverside Resource Recovery. Proposals for the development have been batted about since 1990 with the first application refused after a public inquiry in 1992.
Energy minister Malcolm Wicks said: 'This decision was taken after careful consideration of the recommendations from the Public Inquiry Inspector who oversaw two public inquiries that looked into this application in 2003 and 2005.
Mr Wicks agreed with the Inspectors assurance that there would be enough waste to fuel the site despite 'ambitious' recycling targets set by the Mayor of London.
Mr Wicks added: 'This decision will make an important contribution to tackling London's waste problem.'