By Lefteris Karagiannopoulos

OSLO, Feb 1 (Reuters) - Steelmaker SSAB plans to build the world's first fossil fuel-free steel plant powered by hydrogen, backed by utility Vattenfall and miner Luossavaara Kiirunavaara, the Swedish firms said on Thursday.

The pilot venture will aim to develop technology to later make SSAB's entire production fossil-free, SSAB spokeswoman Viktoria Karsberg said.

SSAB's global output reached 8.8 million tonnes in 2017, she said.

The idea behind the project, called HYBRIT, is to use hydrogen, produced with electricity from fossil-free Swedish sources. The emissions would be water.

If successful, the technology could eliminate its greenhouse gases which accounted for 10 percent of Sweden's carbon dioxide emissions and 7 percent of Finland's, Karsberg said.

"After building the pilot plant we will run tests between 2020 and 2024 and then we can scale up to a demonstration plant. By 2035 we should have a ready solution for all production," she told Reuters.

The pilot plant, for which a construction decision is expected by mid-2018, could cost 1 billion to 2 billion Swedish crowns ($127-$254 million) and its test production would amount to 1 to 2 tonnes of steel per hour.

A demo-plant though would have a capacity of 500,000 tonnes a year, she added.

SSAB, one of Sweden's biggest polluters, aims to cut its carbon dioxide emissions in Sweden by 25 percent by as early as 2025, and eliminate most of the remaining CO2 emissions by 2045, it said in the statement.

Coal and coke, which are shipped to Sweden from countries including Australia, are used to produce iron.

The project is subject to help from the Swedish state, the European Union, research institutions and universities, the companies said, and will require grid improvements and faster permit approvals.

(Editing by Jason Neely)