The Danjiangkou dam is being enlarged for the mega-project
China has begun to resettle 330,000 people to make way for a project to divert water from the south of the country to the north, state media say.
People in Henan and Hubei provinces are being moved out of the way of a canal from the Yangtze River to Beijing, Xinhua news agency said.
When completed, three routes will carry water from southern, central and western China to the arid north.
The $62bn (£42bn) project is already four years behind schedule.
Water is expected to flow from the Yangtze and its tributaries to Beijing in 2014 along the central route.
People are being moved from their homes near the Danjiangkou reservoir, which is being enlarged and where a sluice is being built to divert water from the Yangtze and its tributaries.
The Henan provincial government has approved settlement areas for the people being relocated.
Families are being allocated homes and farmland in newly-built villages, and annual subsidies of about $88 (£54), Xinhua said.
But there have been complaints that farmers are being offered less than half the land they currently use.
Critics have also said the massive project will cause environmental damage and still not satisfy northern China's water demands, even when the three routes are completed.
To solve that problem, experts say, the region must conserve what little water it has.
The water diversion project involves China's second-largest resettlement scheme, following the relocation of 1.3 million people to make way for the Three Gorges Dam.
Three separate routes would bring water from south to north