To be constructed in the heart of the Loch Lomond and Trossachs National Park on land managed by Forestry Commission Scotland, the plant will generate renewable energy which will be sold into the national grid and generate income for the local community.
The hydro scheme, which secured a financing package of £1.9m, aims to generate around 1,300,000kW hours of energy annually.
The produced energy will be sufficient to provide electricity for about 300 average homes.
Once operational, the plant is expected to be able to deliver up to £2.85m over a 20 year timeframe.
Energy Minister Fergus Ewing said the community had also previously benefited from a CARES pre-planning loan of £141,000, in addition to the loan amount of £311,000.
"The money from the project will be reinvested back into the community helping it to become stronger and more sustainable," Ewing added.
