KUALA LUMPUR, (REUTERS) - Malaysian state investor Khazanah Nasional will pay 486 million ringgit, (S$ 190 million), for a stake of 4.95 percent in Beijing Enterprises Water Group Ltd, as it looks to tap into China's booming water treatment sector.

Khazanah said in a statement on Friday its subsidiary, Mount Reskit Investments Limited, would subscribe to 400 million new shares in the company, a unit of China's state infrastructure firm, Beijing Enterprises Group Ltd.

Another Khazanah subsidiary, KCS Green Energy, and a subsidiary of Beijing Enterprises Group will combine the waste-to-energy assets of seven plants to build a bigger presence in China and expand into other markets, Khazanah said.

"Both the water and waste-to-energy sectors are highly strategic and yet defensive proxies to China's continuing urbanisation growth story," Khazanah said.

Growing water demand is expected to be a major issue in China over the next decade, as water scarcity worsens, driven by population growth, urbanisation and pollution, it added.