The dam on the Xingu River in the northern state of Para is expected to cost approximately $17bn and produce around 11,000GW of electricity.
Environmental groups have complained that the proposed Belo Monte dam will threaten survival of indigenous groups and divert the flow of the river, causing devastation in a large area of the rainforest.
However, this initial approval is said to be a key step before investors could submit bids to build and operate the dam. According to the Brazilian energy ministry, the winner of the bidding process will have to pay $800m to protect the environment.
Carlos Minc, minister of environment, Brazil, said: “The environmental impact exists but it has been weighed up, calculated and reduced.”
The proposed dam is part of the Brazilian government’s efforts to help the country meet energy demand and curb greenhouse gas emissions.
