It will be built next to the Kwinana power station, 40km south of Perth.
Premier Geoff Gallop said the plant would increase the water supply to Perth and its surrounds by 17 per cent each year.
"The threat of a drying climate is with us now, and desalination is a proven technology capable of delivering large quantities of water independent of the weather," Dr Gallop said.
"Both our underground and surface water supplies are not being recharged to the appropriate levels."
The decision comes after the Government rejected the
environmentally sensitive alternative of piping water from the
Yarragadee aquifer, which opponents say would ruin the Blackwood River.