Bin day is to be transformed for hundreds of thousands of Melbourne households, who will be sending both food scraps and green waste to a new $65 million composting plant as early as next year.

Federal Environment Minister Josh Frydenberg will announce on Thursday that the plant will divert more than 12,000 truck loads of organic waste from landfill and turn it into compost.

The material will be used on municipal parks and gardens by the eight local councils collecting the rubbish from households’ green bins.

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The composting plant will be built in Dandenong South by Spanish waste management giant Sacyr and partially financed with a $38 million loan from the federal government’s Clean Energy Finance Corporation.