The power station will be built at Lubmin, near the landfall of the future Nord Stream pipeline, which runs from Russia to Germany through the Baltic Sea. Gas from this line will be used to power this plant, they said.
The power plant will have a capacity of 1200 megawatts and is scheduled to be up and running in 2011. Gazprom and EON will set up a 50:50 joint venture to implement the project.
The two companies already cooperate in other energy projects and have been in talks for several months about Gazprom buying into some of EON's assets in Europe.
The 1,200-kilometre (740-mile) Baltic pipeline project is controversial because it will bypass countries that Russian gas currently transits through, like Poland and Ukraine, and because of environmental and security concerns. The consortium building the pipeline is owned jointly by Gazprom, EON, Germany's BASF and Nederlandse Gasunie of the Netherlands.
Russia's enormous oil and gas reserves are of increasing concern for the European Union because Moscow is seen to be using its strong position for political purposes.
There has also been criticism regarding Gazprom's investments into European energy companies when Russia doesn't allow EU firms to become more involved in extracting Russian oil and gas.