Jan 14 (Reuters) - Global miner Rio Tinto said on Thursday it had reached an agreement with electricity provider Meridian Energy to allow its aluminium smelter in New Zealand to continue operations until December 2024.

Rio Tinto had said in July that it would close New Zealand's Aluminium Smelter (NZAS), which is the country's single largest power user, due to high costs and a challenging market. The move would put over a thousand jobs on the line and dealing a blow to the country's top power producers.

The decision to close the smelter had disappointed politicians and local power firms as it came when the COVID-19 pandemic began to cripple the economy.

The miner said that while talks were ongoing with the government to address the smelter's high transmission costs, the deal with Meridian over power prices would make the smelter economically viable.

The smelter employs over 1000 people directly and creates a further 1600 indirect jobs in Tiwai, located in the country's southernmost region of Southland.

"This agreement improves Tiwai Point’s competitive position and secures the extension of operation to December 2024," Rio Tinto Aluminium chief executive Alf Barrios said in a statement.

The government said the extension allows time for a managed transition while also protecting jobs.

"Today’s news is particularly welcome given the economic uncertainty created by the global COVID-19 pandemic," Finance Minister Grant Robertson said in a statement.

Prime Minister Jacinda Ardern, who won a second term in office last year, had said she would negotiate with Rio Tinto to extend the smelter's operations.

It is a joint venture between Rio and Japan's Sumitomo Chemical Co. Rio had an underlying loss of NZ$46 million ($33.1 million) in 2019 arising from it.

In separate statements, Meridian Energy and fellow electricity provider Contact Energy said they welcomed the move to extend the smelter's operations.

Meridian shares climb over 3% to lead gains on the NZ benchmark. ($1 = 1.3910 New Zealand dollars)

(Reporting by Praveen Menon and Shashwat Awasthi; Editing by Amy Caren Daniel)