The first phase of the project will be the installation of the 350MW gas turbine, which Siemens said would be the world's largest and most powerful gas turbine.
After the unit has been tested, the turbine will form the heart of a combined-cycle power plant with a capacity of approximately 530MW.
"Supplying the world's growing population with electricity is a gigantic challenge, especially if it has to be done in an economically, ecologically and socially compatible manner," said Siemens Corporation president and chief executive officer Dr Klaus Kleinfeld.
Siemens will invest approximately €500 million in development and construction of the prototype plant in Irsching, Germany.
E.ON Energie subsidiary E.ON Kraftwerke will take over the plant after a successful trial operation and put it into commercial use.
"With this gas turbine plant in Irsching we will tread on new technical ground," said E.ON Energie chief executive officer Dr Johannes Teyssen.
Teyssen said German combined cycle power plants currently reached maximum efficiency levels of 58%.
Teyssen and Kleinfeld anticipate the new gas and steam cycle turbine plant will set a new world ranking for efficiency.
Teyssen said the prototype plant would not only lower the cost of power generation but make a major contribution towards climate protection.
E.ON Kraftwerke currently operates a gas-fired power plant consisting of three units at the Irsching site: Unit 1 (151MW), Unit 2 (312MW) and Unit 3 (415MW).
