Almost 500 new train carriages will be built by Hitachi at its new factory in Newton Aycliffe, creating 730 jobs.
The Class 800 trains will start running on the East Coast line in 2018. The Department for Transport announced funding of £2.7 billion for the project.
Hitachi has moved its global rail headquarters to London, after securing a £1bn contract to build trains in the North East.
The Business Secretary Vince Cable said today it was a 'vote of confidence' in the UK and the North East.
Business secretary Vince Cable says Hitachi moving its global headquarters from Japan to London is great news for the North East, where the company's train building factory will be based.
The rail firm Hitachi has moved its global headquarters from Tokyo to London, after winning a £1.2bn contract to build trains at its new factory in Newton Aycliffe in County Durham.
The Business Secretary, Vince Cable, said: "This move demonstrates a huge vote of confidence in Britain, its workers and its rail industry from one of Japan's biggest businesses. It follows the company's announcement last year of 750 new jobs at their factory in Newton Aycliffe."
The new purpose-built factory in Newton Aycliffe is expected to be operational from 2015 with full production starting in 2016.
A total of 270 carriages will be manufactured at the new plant, enhancing the factory's ability to win lucrative rail contracts across Europe.
Hitachi's train factory in Newton Aycliffe has lost out on a £1billion contract to supply Europe’s largest construction project. The company has been told Bombardier has won the deal to make trains for the new Crossrail commuter line being built across London.
It's disappointing to the Japanese firm whose £82million Newton Aycliffe plant opens in 2016.
Construction is beginning on an £82 million factory in County Durham. The Hitachi plant will create hundreds of permanent jobs -and hundreds more in contract work.
Once the site in Newton Aycliffe is ready, Hitachi says it will bid for the contract to build trains for the HS2 scheme - if it goes ahead. The high speed railway would link London to the north of England.
Watch out for some flash photography in Frances Read's report.
Vince Cable MP, Business Secretary.
"We want to establish ourselves as a key British train maker and this factory is a huge step towards doing that.
"In just 18 months, what stands today as an empty field will become home to a state-of the-art facility, manufacturing trains for Europe and the UK.
"This investment will secure employment for more than 150 workers and many more from the supply chain.
"The majority will be from County Durham and the North-East. Shepherd won the tender to build the plant against strong competition and we look forward to working with them and Merchant Place Developments."
Dr Cable said Hitachi's decision to build its European factory in Newton Aycliffe shows the UK is an attractive place for international companies to do business.
He said: "This plant will be a great boost to the North-East economy, creating more than 700 jobs and bringing a long tradition of rail manufacturing back to the region.
"With increasing numbers of passengers set to use our railways over the coming years, we also need to train and encourage more young people."The Government has invested in a new rail training academy in Northampton, which will address skills shortages in traction and rolling stock
"We are also creating a new rail supply chain forum to help UK companies to win work both here and abroad."