Construction started on the flood alleviation scheme last month after two years of development, including consultation with the local community.
The scheme has been developed in partnership with Lewes District Council, East Sussex County Council, the Coast to Capital Local Enterprise Partnership (LEP) and South East LEP to reduce flood risks.
Approximately 431 homes and 387 commercial properties were at risk of flood damage.
The scheme has been implemented to prevent a repeat of the 2013 floods, which caused widespread damage to the area.
Contractor JacksonHyder has been commissioned to carry out the design and construction of the flood defence, which is expected to be completed in 2019.
Coast to Capital LEP and South East LEP are each contributing £1.5m to the regeneration of Newhaven.
This funding allowed the construction of the flood scheme to begin last month.
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Floods minister Thérèse Coffey said: “This £18m flood defence scheme is a great example of our commitment to better protect the Sussex coast from the kind of devastating flooding experienced in 2013.
“All along this coastline, communities are thriving and growing.
“But we understand the region’s full potential cannot be realised without tackling flood risk.
“That’s exactly what we’re working with our partners to achieve in Newhaven and throughout the country.”
Developers have also been targeted in efforts to reduce flood risks, after a report released in November last year called for developers to be held liable for flood damages if they have not complied with planning requirements.
Neil Parish MP, chair of the Environment, Food and Rural Affairs Committee, said: “Building regulations must be tightened up to help flood-proof our properties if a voluntary code is not agreed by the end of this year .
“Developers who flout planning rules in high flood risk areas must also be penalised."