The plant in the town of Zubaidiya initially was slated to have four 330 megawatt generators for a total capacity of 1,320 MW but the new deal would see two additional 610 MW units installed to expand capacity to 2,540 megawatts, officials said.
Shanghai started work last May on Phase 1 of the plant, which was valued at $924 million.
"This is a huge leap in the contracts of the electricity ministry to enlarge a thermal plant by 1,200 MW," Electricity Minister Raad Shallal said at the signing ceremony.
"Thermal power plants are the backbone of the electricity system. The long term plan of the ministry is the thermal plants."
Intermittent electricity is one of Iraqis' chief complaints. More than eight years after the 2003 U.S.-led invasion that toppled Saddam Hussein, the national grid supplies only a few hours of power each day.