The massive Belo Monte hydroelectric dam in the heart of the Amazon rain forest has won approval from Brazil's environmental protection agency.
The move clears the way for construction of a project fiercely opposed by environmentalists, indigenous activists and celebrities including film director James Cameron and rock star Sting.
The dam would be the world's third largest, behind China's Three Gorges dam and the Itaipu, which straddles the border of Brazil and Paraguay.
The consortium building Belo Monte must still obtain an operating license before producing energy, but Wednesday's decision allows for full-scale construction of an 11-billion dollar project designed to produce 11,000 megawatts of electricity, more than 6% of Brazil's energy needs.
The government says the project is essential to help Brazil maintain torrid economic growth that can help lift millions out of poverty. It says it is designed to minimize environmental damage.
Environmentalists fear the project will lead to more dams in the Amazon, creating development that will mean faster deforestation of the Amazon region, a rain forest that scientists say is one of nature's best defences against global warming, a massive absorber of carbon dioxide.
"Belo Monte is emblematic and a sign of things to come," said Brent Millikan, the Brasilia-based Amazon programme director for the environmental group International Rivers. "It's a dangerous precedent and a precedent that will be applied to other places in the Amazon."
Critics say the dam will harm fish stocks vital to 14 tribes that inhabit the Xingu National Park downriver, turn up to 90 miles of the river into stagnant puddles and displace as many as 40,000 people. The dam will flood 200 square miles of rain forest.
The office of President Dilma Rousseff said that it was launching a sustainable development project for the area of Para state where the dam will be built. The programme will promote economic development that profits from the forest and river without destroying it. Details on the programme were not immediately available.
The Norte Energia consortium that will build the dam said on its website it expects the project to begin operating in 2015. Initial work in preparing the land where the dam will be built, including constructing a road leading to the site, was approved earlier this year. The consortium did not indicate when construction of the dam itself would start.