TransCanada, Ontario agree to move canceled power project

* TransCanada to relocate power plant to eastern Ontaro

* Ontario to pay company C$40 million for costs

* 900-megawatt station in service by early 2017

CALGARY, Alberta, Sept 24 (Reuters) - TransCanada Corp , the country's largest power and pipeline company, will build a 900-megawatt power plant in eastern Ontario after the provincial government agreed to pay it C$40 million ($40.8 million) in costs for a canceled project, the Ontario Power Authority said on Monday.

In its release, the OPA said TransCanada will build the natural gas-fired power plant at the site of the 2,100 megawatt Lennox oil and gas-fired generating station on the northern shore of Lake Ontario, about 210 kilometers (130 miles) northeast of Toronto.

The agreement comes after public pressure in 2010 pushed the government to scuttle a previously approved plan by TransCanada to build the power plant in Oakville, a Toronto suburb.

TransCanada, which could not be immediately reached for comment, will receive the C$40 million to cover the cost of engineering and design work that does not apply to the Lennox site.

The OPA said it expects the new plant to be in service by early 2017.