The project has been dogged by controversy since planning permission was first sought eight years ago.
While advocates claim the new link between the electricity grids on both sides of the border is vital for the island's energy market, opponents insist it will have negative environmental and health impacts.
The decision by Northern Ireland's Department of Infrastructure was taken by a senior civil servant in the continued absence of an elected minister due to the powersharing crisis in Belfast.
It comes on foot of a recommendation by the Planning Appeals Commission (PAC), which last year held a public inquiry into the application.
A departmental spokesman said: "In arriving at the final decision, the Department carefully considered and agreed with the independent report and recommendations of the PAC which states there is an urgent and compelling need for the proposed development.
"The Department considered that it is in the public interest to take this decision, without further delay, given the strategic importance of the project for the region."
Planning permission for the longer southern section was approved in 2016. A subsequent legal challenge was dismissed in Dublin High Court.
SONI (System Operator for Northern Ireland) is overseeing the northern half of the project.
Robin McCormick, general manager of SONI, said working with landowners and the community remained a priority.
"The North South Interconnector is undoubtedly the most important infrastructure scheme on the island today and will deliver very real benefits to domestic and commercial consumers," he said.
"It has received strong support from businesses and employers because of the positive impact it will have on the economy, and from consumer groups as it will help reduce the cost of electricity.
"While we recognise this project is to the benefit of everyone, we will continue to work to ensure that it is delivered at the least possible impact to the communities and landowners who are hosting it."
A number of business representative groups in Northern Ireland, including Retail NI, the CBI and the Institute of Directors, welcomed the planning decision.