Neil Clitheroe, chief executive of Scottish Power retail and generation, said it had submitted a competitive bid and was “extremely disappointed” by the decision.
He added: "As we have said previously, today's decision by National Grid means that, in all likelihood, we will be forced to announce the closure of Longannet by March 2016.
"Everyone will appreciate that it is a concerning time for all our people and we will do everything in our power to manage the outcome of this process as best we can."
The plant has been under pressure from European Union environmental legislation and carbon taxation, combined with higher transmission charges to connect to the grid, due to its location in Scotland.
National Grid said the proposal from Peterhead was the "most beneficial" for a number of reasons, including "system stability and resilience" and value for money.
The contract is to ensure stability in the system until the completion in 2017 of projects to improve the electricity transmission system that will help carry renewable energy from Scotland to Wales and England.
Mike Calviou, director of transmission network services at National Grid, said: "We recognised a need for voltage support in Scotland due to a gap between the potential closure of thermal plant and the completion of upgrades to the high-voltage transmission network.
"We shortlisted potential providers for this service and selected the provider that was best able to meet our requirements."
The Department of Energy and Climate Change said the contract was good news for Peterhead, which was developing CCS (carbon capture and storage) technology that would help towards carbon emission targets.
The contract will allow National Grid to call upon 385MW of Peterhead's 1180MW capacity to provide voltage support.
Fergus Ewing, the Energy Minister, said he would hold urgent talks with Scottish Power, Fife Council and unions about Longannet's future.
He said the talks would explore every option for preventing the “premature” closure.
Murdo Fraser, the Scottish Conservative energy spokesman, said the announcement was a serious blow for the workforce and the wider economy, adding: “We have always known Longannet was going to have to close but it's disappointing this has been brought forward.
"It illustrates once again why the Scottish Government has to change tack on energy policy. The SNP is anti-fracking, anti-nuclear and obsessed with developing intermittent wind power.
"This approach will have serious issues in relation to security of supply and could mean we will have to start importing power from England unless we can find a way to fill this gap."
Richard Hardy, Prospect’s negotiations officer, said: “This decision raises two major concerns for our members, the impact on their jobs and the west Fife economy and the implications for security of supply.
"Removing such a large base load generator from the system will make Scotland even more reliant on importing energy from England, at a time when England's generating capacity is also falling."
WWF Scotland said Longannet was Scotland’s biggest single source of climate change emissions and a combination of factors made the ageing plant’s closure inevitable.
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