At least four million people are to be moved from the area around China's Three Gorges Dam amid warnings of an "environmental catastrophe".
The dam is meant to alleviate flooding and provide power
The announcement by state media follows reports that the dam could cause landslides, soil erosion and pollution.
Critics have long warned the dam, the world's largest hydro-electric project, could cause huge environmental damage.
Millions of people are now set to be relocated to the sprawling city of Chongqing at the reservoir's west end.
The vice-mayor of the city, Yu Yuanmu, was quoted as saying the relocations were necessary to "protect the ecology of the reservoir area", which "has a vulnerable environment".
The $25bn (£12.5bn) project, across the country's biggest river, the Yangtze, is due to be completed by the end of 2008.
Two weeks ago the dam's head of construction, Wang Xiaofeng, said the ecological effects of the dam could not be ignored.
The problems included landslides caused by erosion on the steep hills around the dam, conflicts over land shortages, deteriorating quality of drinking water and pollution seeping from submerged industrial sites.
Landslides crashing into the reservoir have then produced huge waves that have damaged the shoreline.
Many of those destined to be shunted to Chongqing over the next 10-15 years have already been moved once.
Some of those relocated have not been given new homes
Some were fishermen and farmers who left their age-old villages, before they were flooded, to set up home higher up the valley.
"In the best situation, many people have put all their life savings into new homes that they built," says Grainne Ryder, of the Canadian monitoring group Probe International.
"To be told now that they have to start over, you know is not only tragic but may indeed lead to more protests, followed by more state brutality."
She said previous attempts to relocate peasants to the cities had had drastic consequences too.
"They're now homeless labourers, many people were not provided the land they were promised, or compensation they were promised, so they're destitute," she says.
Critics of the Three Gorges Dam warned of all the problems now emerging years ago, says the BBC's correspondent Chris Xia.
But the project was backed by powerful figures, like former Prime Minister Li Peng and former President Jiang Zemin, so opposition was quashed.
Official recognition of the problems, he says, seems to indicate an attempt by the current leadership to distance itself from the dam's toxic legacy.
THE THREE GORGES DAM
Type: Concrete Gravity Dam
Cost: Official cost $25bn - actual cost believed to be much higher
Work began: 1993
Due for completion: 2009
Power generation: 26 turbines on left and right sides of dam. Six underground turbines planned for 2010
Power capacity: 18,000 megawatts
Reservoir: 660km long, submerging 632 sq km of land. When fully flooded, water will be 175m above sea level
Navigation: Two-way lock system became operational in 2004. One-step ship elevator due to open in 2009.