North Yorkshire Council and the City of York Council have approved a financial package for the Allerton Waste Recovery Plant project at a special joint meeting of the two authorities.
Councillors took the decision at Northallerton County Hall on Wednesday afternoon in the face of strong community opposition to the development.
The Allerton Waste Recovery Park, part of a 25-year contract between North Yorkshire County Council, City of York Council and AmeyCespa, had been on hold since 2005 due to funding and legal difficulties.
In 2013, Defra withdrew funding credits for the project, along with similar schemes at Bradford and Calderdale and Merseyside Recycling and Waste Authority and Halton, saying it would reduce the likelihood of meeting 2020 landfill diversion targets by just 2%.
Because Defra expects the UK to have sufficient capacity to meet the targets, it was cutting funds to those projects yet to reach financial close, including Allerton.
North Yorkshire County Council said the recovery park would recover value from waste left after reduction, recycling and reuse and would allow the York and North Yorkshire Waste Partnership to exceed its target of recycling 50% of waste by 2020.
If built, the Allerton plant will house technology including mechanical sorting to allow treatment of around 20,000 tonnes per year, an anaerobic digestion plant and an incinerator that will produce enough electricity to supply 40,000 homes.
An opposition group, the North Yorkshire Waste Action Group, has raised concerns over the cost of the project and potential penalties if the county does not provide enough waste to fuel the incinerator.