Neste said the new plant will be around the same size as the 1.5 billion euro ($1.79 billion) refinery expansion it is currently building in Singapore, which the company described as its biggest investment so far.
The Singapore unit produces renewable fuels, mainly from waste and residues such as used cooking oil, animal fat from food industry waste, fish fat from fish processing waste and residues from vegetable oil processing.
After a thorough study, Rotterdam was chosen as location for a European refinery over Finland's Porvoo due to lower costs, the company said.
The decision will come as a disappointment to the Finnish government which owns 44.2% of the company and had hoped the new refinery would bring jobs and tax income to Finland.
Neste said it expects to make a final investment decision in late 2021 or early 2022.
(Reporting by Essi Lehto, editing by Terje Solsvik)