The Norwegian company said that completion of the $200m project is scheduled for the second half of 2022.
A civil works contract has been awarded to a local consortium of Brotec, Valko and OBChile.
Electro- and hydromechanical equipment will be delivered by Voith, which will supply the major components and construction services from its facilities in Brazil.
Los Lagos will be located on the Pilmaiquen river, downstream of Statkraft's operational Rucatayo hydro plant.
It will generate 260 gigawatt-hours of electricity a year once operational.
In February 2015, Statkraft acquired Electrica Pilmaiquen, which included the rights to develop Los Lagos.
Technical assessments and a consultation process have been finalised, while stakeholder engagement with indigenous communities and other locals will continue with the aim of establishing a long-term relationship, the company said.
Statkraft executive-vice president for international power Jurgen Tzschoppe said: “Chile is an attractive market for Statkraft, with an increasing demand for renewable energy and several opportunities for developing both hydro, wind and solar.
“In line with our strategy, we are working to build scale in Chile.
“We want to capitalise on our combined expertise in power generation and market operations to best serve the market and provide energy to large industrial customers in the country.”
Statkraft added that it is also assessing wind and solar opportunities in the country and evaluating possibilities for bidding in future renewable energy auctions.