Australian Paper wants to build a $600 million incinerator to turn waste into power.

The company says soaring gas and electricity prices have prompted its search for new technological solutions.

The mill is responsible for about 8 per cent of Victoria's industrial gas consumption, but says it could reduce its use by about 60 per cent by burning non-hazardous rubbish.

Australian Paper has secured state and federal funding of $5 million for a feasibility study.

It plans to source waste from household bins, factories, shopping centres and offices in Melbourne and Gippsland.

The company says the $600 million facility could save 650,000 tonnes of waste from landfill each year, cut 550,000 tonnes of greenhouse gas emissions each year and generate hundreds of direct and indirect jobs when the incinerator is operating.

The Victorian Government will soon release a waste-to-energy policy.

“Waste-to-energy projects offer potential for generating energy from materials at the end of their life cycle, reducing pressure on landfill,” Energy and Environment Minister Lily D'Ambrosio said.