The announcement by President Leonid Kuchma in Kiev in the presence of Bill Clinton crowned the US president's week-long valedictory tour of Europe and concluded seven years of wrangling over the fate of the power station, which spewed clouds of radioactive debris across Europe when its fourth reactor exploded in April 1986.

"We will switch Chernobyl off permanently by December 15 this year," said Mr Kuchma after the two presidents had toasted the decision with champagne.

Mr Clinton said Washington would provide $80m (£50m) to Ukraine to help with the effort to render the disaster site safe and for investment in the moribund Ukrainian energy industry.

Most of the money will be spent on repairing or renewing the creaking concrete and steel "sarcophagus" which has entombed the stricken reactor since the disaster.

Describing the Ukrainian decision as "a historic announcement", Mr Clinton said: "The final reactor at the Chernobyl nuclear power plant will be shut down and the entire plant closed on December 15. This is a hopeful moment. It is also a moment when we remember those who suffered as a result of the accident there."

An epidemic of thyroid cancer among thousands of children in Ukraine and in neighbouring Belarus is currently one of the most troubling legacies of the nuclear explosion.

Greenpeace said the announcement was long overdue. "Fourteen years after the worst nuclear catastrophe in history, the Chernobyl timebomb is finally being defused," said a spokesman.

Of the four reactors at Chernobyl, one - unit three - is still operational and has been generating electricity this year. Unit one was closed down many years ago and unit two after a fire two years ago.

Ukraine is immersed in a deep energy crisis, with power cuts a daily routine. However, the country's economy is contracting and Chernobyl is no longer seen as vital to its energy needs. As long ago as 1995, Kiev promised to close down the stricken station within five years if the west provided credits to finance alternative energy sources.

The G7 group of industrialised countries agreed to fund the closure and the western pro-nuclear lobby argued for funds to complete two mothballed Soviet-era nuclear power plants, at Rivne and Khmelnitsky.

But these plans ran into trouble, not least in Germany where the anti-nuclear Greens form part of the coalition government. Berlin is under pressure to boycott the nuclear funding scheme in favour of developing gas-fired stations in Ukraine.

In 1993 the Ukrainian parliament voted to keep the Chernobyl plant operating, triggering western protests and ultimately the G7 response.

But despite the Ukrainian closure pledge, Kiev repeatedly backtracked on its commitment, complaining that the west was reneging on its end of the bargain.

Earlier this year, Mr Kuchma backed a national commission ruling that Chernobyl should be closed this year and on the eve of Mr Clinton's arrival on Sunday he said that Chernobyl "has to be stopped from all points of view, above all from the point of view of safety".

He added, however, that Ukraine could not afford to deal with the problem alone. The cost of completing the two replacement nuclear power stations is estimated at around £800,000.

The favoured option was to complete the two nuclear plants at Rivne and Khmelnitsky but the EU governments' European bank of reconstruction and development fell out over the details. The stations have been lying incomplete since the end of the communist era. The bank was supposed to plump for the "least cost option" but figures making nuclear energy appear the cheapest were doctored, critics alleged.

On May 23, this year Germany, Sweden and Austria said the EU could only finance the building of non-nuclear stations in Ukraine.

No decision on replacing the remaining operational Chernobyl reactor, which is plagued with technical problems, has yet been reached. The question of how to replace it for when Ukraine's economy eventually expands again has yet to be resolved.