Costing a total of £7.5m to build, the food recycling plant will process 30,000 tonnes of waste food each year, powering up to 1,000 homes.
Controlled by Scottish Water Waste Services, the facility, which is to open in Spring 2010, will also be the first in Scotland to produce energy through combined heat and power. The heat is to be sold on to businesses for use on industrial sites.
Cabinet Secretary for Rural Affairs and the Environment Richard Lochead said: Facilities such as this contribute significantly to the achievement of Scottish Governments Zero Waste targets.
The new Deerdykes facility will reduce organic waste to landfill, and the creation of agricultural fertiliser as a by-product is an additional bonus which shows real innovation.
Food waste collected from homes and businesses will be recycled into PAS110 approved fertilisers. Electricity and heat will be generated through burning the biogas fraction.
WRAP director for Scotland Iain Gullard said: WRAP is making a significant investment in an innovative facility which will take recycling in Scotland to a new level.
The cutting edge plant will be situated at the 12 acre Deerdykes organics recycling centre, North Lanarkshire. The firm already produces compost from food and garden waste.