The plant will cost £5.5 million and is due to be operational within two years.
It will take up to 12,000 tonnes of pig slurry and 25,000 tonnes of organic waste to create methane gas for energy. It will be built on a 2.5 acre site at Bourne Park Estate, Piddlehinton.
Eco Sustainable Solutions managing director Trelawney Dampney said the new plant will help Dorset County Council achieve its waste reduction aims as well as contribute to the UKs renewable energy targets.
He added: We have to find an alternative fuel to oil. Generating energy from food waste is the most economically and environmentally sustainable way of doing it.
Eco, which is based at Parley, Dorset, was awarded an eight-year contract with Dorset County Council in 2008 to handle food, wood and green waste from across the country.