The Burbo Bank Extension will consist of 32 wind turbines and is expected to be commissioned in 2017.
Burbo Bank Extension is one of the first three projects for which Dong Energy was awarded contracts for difference (CfDs) in April.
Dong Energy executive vice president Samuel Leupold said: “We can now begin the construction of Burbo Bank Extension which will supply green power to approximately 180,000 UK households.
“The decision to construct Burbo Bank Extension using an 8MW wind turbine is another significant step towards reducing cost of electricity on future projects.”
Energy secretary Ed Davey added: “The UK is ranked as the best place in the world to invest in offshore wind projects. We want an energy mix that is built on diverse, home-grown sources to make sure our supplies are clean and secure.
“Wind power is vital to this plan, with £14.5 billion invested since 2010 which is powering over 3 million more homes across the UK.”
Dong Energy said this decision does not change its financial guidance for the 2014 financial year or the expected investment level for 2014-2015.