"This is a new step in an exceptional adventure," French President Jacques Chirac said after leading the signing ceremony in Paris.
Representatives from China, the European Union, India, Japan, Russia, South Korea and the United States signed the pact on the construction of the 10-billion-euro (12.8 billion dollar) reactor.
Originally called the International Thermonuclear Experimental Reactor but now known officially by its initials ITER (or "the way" in Latin), the facility is to be built in Cadarache, in southern France, over a decade starting 2008.
The project aims to research a clean and limitless alternative to dwindling fossil fuel reserves by testing nuclear fusion technologies.
Instead of splitting the atom -- the principle behind current nuclear plants -- the project seeks to harness nuclear fusion: the power of the sun and the stars achieved by fusing together atomic nuclei.
If it is successful, a prototype commercial reactor will be built, and if that works, fusion technology will be rolled out across the world.
Chirac said the experimental reactor was "a hand held out to future generations" and predicted that, if it proved successful, "we will be able to derive as much energy from a litre of seawater as from a litre of petrol or a kilo of coal."
The EU is to put up half the cost of building the reactor, with the rest evenly divided among the other parties. The project will employ 400 scientists, two-thirds of them non-French.
Following years of wrangling, Japan agreed in 2005 to withdraw its bid to host the project -- in exchange for 20 percent of staff posts including the director general's job.
A Japanese engineer turned ambassador, Kaname Ikeda, was named earlier this month to head the project.
European Commission President Jose Manuel Barroso, who was also in Paris Tuesday, called the signing "a major event" and a step forward to finding new energy sources that did not cause climate change.
In a fusion reaction, energy is released when light atomic nuclei - the hydrogen isotopes deuterium and tritium - are fused together to form heavier atomic nuclei. To use controlled fusion reactions on Earth as an energy source, it is necessary to heat a gas to temperatures exceeding 100 million Celsius - many times hotter than the centre of the sun.
One of the attractions of fusion is the tiny amount of fuel needed. The release of energy from a fusion reaction is 10 million times greater than from a typical chemical reaction, such as burning a fossil fuel. But the project has been criticised by environmental groups like Greenpeace, who argue that the enormous cost will suck funds away from other areas of alternative energy research, with no guarantee that an effective method of simulating and harnessing the fusion process will ever be found.

Copyright AFP (Agence France-Presse), 2006