Monday's announcement was made during a Belgian summit which seeks to scale up wind power generation in the North Sea.
"Today's historic deal with the Netherlands connects our two countries together through this exciting feat of innovation and engineering," said UK energy minister Grant Shapps.
"Together with the strong ties we have with our northern European neighbors united today at the North Sea Summit, we are bolstering our energy security," Shapps said.
The new project, named LionLink, will link offshore wind farms in the North Sea to the UK and the Netherlands.
It will be developed by UK energy distributor National Grid and Dutch electricity supplier TenneT.
LionLink will power up to 1.8 million British homes and be operational by the early 2030s, the UK government said in a statement.
The multipurpose link will be the largest in terms of electricity capacity anywhere in the world.
It is only the second of its kind, following a similar project between Germany and Denmark.
The link will send a "strong signal" to Russian President Vladimir Putin that "the days of his dominance over global power markets are well and truly over".
And it will seek to provide enough electricity to power more homes than the large UK cities of Birmingham and Manchester combined.
Monday's European summit, held in the coastal town of Ostend, featured leaders of EU members Denmark, France, Germany, Ireland, the Netherlands and Luxembourg, with European Commission chief Ursula von der Leyen also attending.
The gathering was spurred by fallout from the Ukraine war - and the global push for renewables to help tackle climate change.
Russia's assault on Ukraine last year sent energy prices rocketing, and sparked sky-high inflation around the world.