The city of Zagreb and the central government will finance the project, whose cost is estimated at some 175 million euros (£145m), according to the agreement.
"This was a long-awaited project, strongly supported by both the government and Zagreb in partnership, because it is indeed of national importance," said Prime Minister Andrej Plenkovic.
The new stadium will have 35,000 seats, according to Zagreb mayor Tomislav Tomasevic, and is set to be completed in 2029.
It will replace the storied Maksimir Stadium that has hosted numerous matches by the Croatian national football team, concerts and other athletic competitions since the former Yugoslav republic declared independence in 1991.
The stadium was also the scene of the infamous match between Red Star Belgrade and Dinamo in May 1990 that erupted into a riot that many observers cite as the prelude to the conflicts that triggered the collapse of Yugoslavia.
In March 2020, Maksimir was damaged by a powerful earthquake that hit Zagreb, which reduced its capacity by a third.
Local media claim that in 2023 Maksimir was ranked the third ugliest football stadium in Europe, based on reviews on TripAdvisor, Google and other similar platforms.