The bill for the first phase of the South-North Water Diversion Project will increase by 101 billion yuan (12.5 billion dollars) to 225 billion yuan, the Xinhua news agency quoted an official in charge of the project as saying.

The first phase of the project, which began in 2002, involves the construction of the eastern and middle routes.

The extra money is needed to compensate residents who were forced to relocate and to fund environmental repair projects, Zhang Jiyao, director of China's cabinet's committee was quoted as saying.

Managers were also facing extra costs due to rising interest rates on loans, he said.

The scheme, one of the world's largest water projects, was approved by China's cabinet in December 2002 after a half century of debate.

It is designed to carry some 9.5 billion cubic meters of water from the Yangtze River to the north of the country each year.

Work began in December 2002 on the eastern route, which is expected to supply water to east China's Shandong province by 2007.

The central route project got underway in December 2003 and is due to supply Henan and Hebei provinces, Beijing and Tianjin by 2010. Construction on the western route is scheduled to begin in 2010.

The entire project is expected to cost 500 billion yuan (62 billion dollars) by 2050, Thursday's Xinhua report said.

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