The announcement by the government confirmed a Reuters report on Wednesday.
Terrafame is backed by commodities house Trafigura. It plans to produce uranium at a mine in the Kainuu region that has been producing nickel and other metals for batteries for years, and was previously known as Talvivaara.
Terrafame took over the mine in 2015 after environmental hurdles had led the mine to file for bankruptcy.
"When it comes to primary production, there isn't any (uranium) production elsewhere in the EU area according to our information, although there used to be," Terrafame chief executive Joni Lukkaroinen told Reuters.
Terrafame's predecessor Talvivaara had already constructed a 75 million euro (63.23 million pounds) uranium recovery plant at the mine before its bankruptcy and Lukkaroinen said Terrafame would invest another 10 million to finish it.
"Getting the uranium plant operational will take roughly a year," the company said in a statement, adding the start could be delayed by another year if the government decision faces appeals.
The Finnish Association for Nature Conservation said it planned to launch such an appeal.
"On the basis of the nuclear energy act, there are no grounds to grant a permit since the mine's waste solution is not durably safe for the environment nor have its long-term effects been assessed," its local branch wrote in a statement.
Talvivaara left several nearby lakes contaminated with heavy metals when its waste waters leaked on two occasions back in 2012 and 2013.
Terrafame plans to recover uranium from ore at the mine, along with its main products nickel, zinc, cobalt and copper, and refine it into yellowcake, a semi-finished uranium oxide product used to manufacture fuel for nuclear power plants.
It will then export the yellowcake to other countries approved by the International Atomic Energy Agency for processing it into nuclear fuel for which there are no existing production facilities in Finland.
Last year, 35% of Finnish electricity production came from the country's four nuclear reactors, whose owners Fortum and TVO [POHVOT.UL] buy their nuclear fuel from other countries including Russia, France and Canada.
Lukkaroinen said Terrafame did not have a goal to promote nuclear self-sufficiency. "Our only interest is to ameliorate our profitability," he said.
State-owned Finnish Minerals Group owns 71.8% of Terrafame, while Trafigura Group's private investment arm Galena holds 27.6% and Finnish insurer Sampo 0.6%.
(Reporting by Anne Kauranen, additional reporting by Tarmo Virki; Editing by Susan Fenton and Mark Potter)