The new Grain power station will be located next to the existing plant

Construction on the site of an oil-fired station on the Isle of Grain could start next year, with electricity generated in 2009.

Alistair Darling, trade and industry secretary, said heat produced by the new station would be used to supply nearby industry.

E.ON UK have also announced plans for a �1bn power station in Kent.

Mr Darling's announcement on the new 1,200 megawatt power station on the Isle of Grain came as part of the government's energy review.

He said a radical shift away from large centralised power production to community based locally grown energy could help cut carbon emissions and improve efficiency.

Dr Paul Golby, chief executive of E.ON UK, said: "This new station will help us to bridge the gap between the UK's existing capacity and the generators of the future."

The latest announcement follows the unveiling of plans for a coal-fired plant to replace the existing power station at the Kingsnorth site in the Hoo Peninsula.