COLOMBO • Sri Lanka has granted permission for China to build a vast "port city" in the island's capital, despite concerns the project could be an environmental disaster.

President Maithripala Sirisena had suspended the contentious US$1.4 billion (S$1.9 billion) plan to build on reclaimed land next to Colombo's main harbour, shortly after taking power in January last year. But the port city, initiated by Chinese President Xi Jinping in September 2014 and expected to include real estate, a marina and a Formula One racetrack, has again been given the green light.

"The Cabinet Committee on Economic Management has recommended allowing resumption of the project, subject to limitations and conditions stipulated in the EIA (environmental impact assessment)," the government said in a statement yesterday.

It did not say what the conditions were, but official sources say Chinese investors were given permission to resume work on the project without any major modifications.

Prime Minister Ranil Wickremesinghe has said reclaiming land next to the harbour could trigger erosion along the island's western coastline and threaten its vital tourist industry.

The project, funded by Chinese state-owned company China Communications Construction, represents the biggest single foreign investment received by Sri Lanka.

AGENCE FRANCE-PRESSE