More than $30m has been embezzled from funds allocated for residents displaced by China's Three Gorges Dam project, state media has said.
Chinese auditors said the money was misappropriated from funds allocated in 2004 and 2005, and warned the total figure could be even higher.
Corrupt local officials have long been rumoured to have pocketed money meant for the resettlement of residents.
Some 1.4 million people have been displaced by the massive dam project.
The national audit office said it believed 272m yuan ($34.8m) of 9.6bn yuan allocated in 2004 and 2005 had been misappropriated by local authorities, Xinhua news agency reports.
'Inferior land'
The money should have been used for housing, construction and other services such as job training related to the resettlement of displaced residents.
Instead, it went to pay off the debts of other departments, staff salaries, build more offices and homes for people outside of the resettlement project, the audit office said.
Auditors also found cases of salaries for workers who did not exist and the unnecessary raising of building project costs.
They also warned that, since their process did not cover certain regions or take into account the 2006 funds, the final figure of misappropriated funds could be higher.
Work on the dam, set to be the world's largest hydro-electric project, began in 1993. It is due to become fully operational by 2009.
China says it is necessary to provide electricity for its booming economy and help control flooding on the Yangtze River.
But campaigners say it comes at the expense of villagers, who in many cases have been resettled on inferior land and been deprived of compensation by corrupt local officials.
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