Sri Lanka has signed a $1.1bn (£837m) deal with China for the control and development of the southern deep-sea port of Hambantota, BBC report.
The deal had been delayed by several months over concerns that the port could be used by the Chinese military.
The government has given assurances that China will run only commercial operations from the port, on the main shipping route between Asia and Europe.
Sri Lanka’s government says money from the deal will help repay foreign loans.
Under the proposal, a state-run Chinese company will have a 99-year lease on the port and about 15,000 acres nearby for an industrial zone.
The plan envisages the eviction of thousands of villagers but the government says they will be given new land.
China has pumped millions of dollars into Sri Lanka’s infrastructure since the end of a 26-year civil war in 2009.
Hambantota port, overlooking the Indian Ocean, is expected to play a key role in China’s “One Belt, One Road” initiative, otherwise known as the new Silk Road, which will link ports and roads between China and Europe.