The $4.2bn (£3.8bn) dam, located in the western Benishangul-Gumuz region, has been a source of contention between Ethiopia, Egypt and Sudan since its construction started in 2011.
Sudan and Egypt fear the project could reduce their share of Nile waters.
Ethiopia insists the dam is key to its development.
The so-called Grand Ethiopian Renaissance Dam (Gerd) is Africa's biggest hydroelectric project to date.
The Gerd is expected to generate over 5,000 megawatts of electricity, doubling the nation's electricity output when it is fully completed.
It is currently 83.9% complete, the state-owned ETV News channel said on Sunday.
The Ethiopian government insists it will transform the national economy, which has been severely damaged by drought and war, when it is fully operational.
In a televised opening ceremony on Sunday, Mr Abiy toured the dam's power generation station and pressed a number of buttons which initiated production, according to officials.
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