The 730km-long North Sea Network (NSN) Link is the first electricity interconnector between the two countries, and will supply hydropower from Norway to the UK.
The subsea electricity cable will have a capacity of around 1,400MW, which will be enough to power nearly three quarters of a million UK homes, the National Grid said.
Expected to be completed by 2021, the interconnector will run between Blyth in Northumberland and Kvilldal in Rogaland.
There will be a converter station on each side where the interconnector is connected to the grid.
UK Energy Secretary Ed Davey said: "Britain will benefit from Norwegian green hydropower, at the flick of a switch, providing green backup power when the wind’s not blowing, and this will actually save people money.
"Coming after the recent confirmation of the Nemo interconnector project with Belgium, I am proud we are now seeing a huge increase in Britain’s energy options, and the prospect of a real single energy market and energy supergrid in Europe."
The project is being backed by EU projects of common interest Initiative. It is also expected to receive €31m in grants from EU’s Connecting Europe Fund for development and early stage engineering studies.
The agreement with Norway is the fourth interconnector deal between the UK and Europe.
In February, National Grid has signed an agreement with Belgian electricity transmission system operator Elia to build 140km Nemo link interconnector with a capacity of 1,000MW, for energy supply from either sides.
A 2,000MW link to France and 1,000MW link to the Netherlands are already in operation.
Statnett is also building a similar interconnector, NordLink, between Norway and Germany.
Image: The interconnector will have 730km-long subsea cables. Photo: courtesy of UK National Grid.
