Northumbrian Water has awarded the Interserve Doosan JV a design and construct contract to increase treatment capacity at Horsley.
Construction is expected to start in summer 2016 and take about two and a half years to complete.
The new treatment facilities will be built alongside the current 1970s plant which will continue to operate until the new works are complete. Much of the old works will then be demolished.
Consulting engineers for the scheme are MWH and Turner & Townsend.
Interserve chief executive Adrian Ringrose said: "Both Interserve and Doosan Enpure have an established track record of delivering major utilities projects and we're excited to be working together on this project for Northumbrian Water which will give the residents of Tyneside a world-class facility that will be used for years to come. Where possible, we will use local resources, while supporting the local economy and employment in the region."
Noel Cooper, Northumbrian Water's head of water supply, said: "We are committed to providing our customers with unrivalled customer experience. We know how much our customers rely on their tap water so ensuring it is excellent quality is a top priority. This work will not only ensure that the Horsley water treatment works continues to meet ever increasing water quality standards, it will also improve the site's resilience."
Untreated water for the Horsley works comes from the River Tyne at Ovingham and the Whittle Dene complex of reservoirs. The treated water supply from Horsley, which also serves the village of Horsley, together with additional water from the treatment works at Whittle Dene supplies the drinking water for Tyneside.