LBANY, Sept. 4 — Settling a dispute with environmental and community groups, New York State has agreed to shut down a power plant in Astoria, Queens, that is the largest source, by far, of toxic pollution in New York City.

The State Power Authority is to announce Thursday that it will close the facility, the Charles Poletti plant, at some point between 2008 and 2010, and that until then it will steeply cut emissions by changing the plant's mix of fuels.

The Power Authority wants to build a 500-megawatt plant next to the existing 825-megawatt Poletti plant, near the East River. Environmentalists usually favor building new plants because they are far cleaner than older ones, but they have been fighting for two years to block this project, using their resistance as leverage to persuade the authority to eliminate Poletti.

Two recent court decisions gave environmental groups powerful new ammunition, and they threatened to sue to block the new plant when it seemed likely earlier this year that a state board would approve it.

Gov. George E. Pataki stepped in, according to people involved in the case, and directed the Power Authority to settle the dispute. The resulting agreement, which is legally binding on the authority, provides for closing Poletti and clears the way for approval of the new plant next door.

"To me, it was very simple that we had to get this thing done, and not simply because we wanted to have a new plant online, but because we wanted to end the pollution from the Poletti plant," the governor said today in an interview. "The new plants are so infinitely cleaner that those who just blanket oppose any new construction do the state and its environment a disservice."

The deal saves the governor, who is in the middle of a re-election campaign, from the prospect of a high-profile lawsuit and accusations that his administration is on the unpopular side of an environmental issue.

An Environmental Protection Agency report released in August named Poletti as far and away the largest source of toxic air, ground or water emissions in New York City, at more than 250,000 pounds per year — more than all reported sources in Brooklyn, Manhattan and the Bronx, combined.

"This community has been pleading for years to shut the thing down, and the E.P.A. report added fuel to that," said Assemblyman Michael N. Gianaris, who represents the neighborhood. "It's the one plant in the city the governor really has control over, and I'm obviously thrilled he did the right thing."

Lisa Garcia, a lawyer for the New York Public Interest Research Group and one of the people who negotiated the agreement, said Poletti frequently violated the terms of its environmental permits. "We made it very clear that we were ready to go to the court and say, `They can't build a new plant until they do some environmental mitigation, and the best mitigation is to close Poletti,' " she said.

Poletti can burn either natural gas or oil, and in recent years it has used oil more than 60 percent of the time; oil creates much more pollution than gas. Under the agreement, starting in January, it will burn oil no more than 25 percent of the time from May through September, and no more than 40 percent the rest of the year.

The new 500-megawatt plant will use oil even less often, and will have up-to-date emission controls that Poletti lacks. When that plant is running and Poletti is closed, the net effect, environmental groups say, will be a 95 percent reduction in both sulfur dioxide and nitrogen oxides.