Building will now begin on what will be the world's third-largest hydroelectric dam after Ibama, Brazil's environment agency, gave the go-ahead for the controversial $17 billion (£10.6 billion) project.
Ibama issued licenses to Norte Energia, the consortium in charge of the 11GW Belo Monte project, to clear 238 hectares (588 acres) of forest land around the Amazonian tributary Xingu.
Licences still have to be granted to actually build the plant, but Norte Energia, comprised of state-run utility Eletrobras, Brazilian pension fund Petros, and several local construction companies, expects the 6km-long (3.7 miles) dam to be producing energy by 2015.
Contracts for the dam were signed in August, 30 years after the project was originally conceived. A series of celebrity-backed global protests over the potential damage to the environment and people living in the region had seen the idea abandoned in the 1990s.
Former president Lula da Silva even opposed the plans before changing his mind and approving the project saying it was necessary for development and job creation – a mindset newly elected president Dilma Rousseff is thought to share.
The dam is likely to displace around 30,000 local inhabitants by flooding a 500-square kilometre area and partially drying up around 100 kilometres of the Xingu river.