Dong has yet to commit formally to funding the second wave of the project. Photo: Henning Bagger/Scanpix
The Hornsea Project Two farm should have up to 300 turbines and a capacity of up to 1.8 gigawatts. It could produce enough energy to power 1.6 million homes.
It is an extension of the 1.2GW Hornsea Project One which was in itself being trumpeted as the world's biggest offshore wind farm.
Both projects are being developed by Danish group Dong Energy, the world's largest operator of offshore wind farms.
London decided on Tuesday to grant development consent for Hornsea Project Two, located around 90 kilometres east of the English coast.
Dong Energy made the final investment decision earlier this year on Hornsea Project One, but is yet to commit formally to funding the second wave.
British business minister Greg Clark said: "Britain is a global leader in offshore wind, and we're determined to be one of the leading destinations for investment in renewable energy.
"The UK's offshore wind industry has grown at an extraordinary rate over the last few years, and is a fundamental part of our plans to build a clean, affordable, secure energy system."
If built to full capacity, the Hornsea Project Two investment would total around £6 billion ($7.8 billion, €6.9 billion).
The farm would create up to 1,960 construction jobs and 580 operational and maintenance jobs, the government said.
Brent Cheshire, DONG Energy's UK chairman, welcomed the development consent.
"Hornsea Project Two provides us with another exciting development opportunity in offshore wind," he said.
The British government said it expected 10GW of offshore wind to be installed by the end of the decade and a further 10GW of offshore wind capacity could be built in the 2020s.