The remote Pacific islands of Tokelau have become the first territory in the world to generate their electricity entirely from solar energy, in a project hailed as an environmental milestone.

Before the solar power grid was completed, the New Zealand-administered grouping of three coral atolls, with a population of just 1,500, relied on diesel generators for electricity.

Project coordinator Mike Bassett-Smith said the diesel was not only environmentally unfriendly, it also cost the islands, which lie about halfway between New Zealand and Hawaii, around NZ$1.0 million ($825,000) a year.

Bassett-Smith, from New Zealand firm PowerSmart Solar, said the change would allow Tokelau to switch money from fuel purchases to social welfare projects.

"For Tokelau, this milestone is of huge importance for their continued well-being," he said in a statement received Wednesday.

"Many Pacific nations struggle to provide a high proportion of their people access to electricity, and even when they do, access to affordable electricity is a significant additional challenge."

New Zealand Foreign Minister Murray McCully said the US$7.0 million project had achieved a world first and Wellington was working with other Pacific nations such as Tonga and the Cook Islands to develop renewable energy.

"Completed on time and on budget, the project is an excellent example of how small Pacific nations can lead the way on renewable energy," he said.