Colombo:  India will provide USD 260 million financial aid to Sri Lanka for the construction of 49,000 housing units for internally displaced people in the former war-zone in the neighbouring region.

The Sri Lankan Cabinet has approved the signing of the memorandum of understanding with India for the houses for the IDPs in the north and eastern provinces.

"The Government of India has agreed to provide grant assistance in a sum of Indian Rupees 13.19 billion or approximately USD 260 million for construction of 49,000 housing units for IDPs in the Northern and Eastern provinces.

This project is to be completed in three stages", Cabinet spokesman Keheliya Rambukwella said on Thursday.

The proposal was submitted by President Mahinda Rajapaksa was approved on Wednesday.

Under the first phase of the project, 38,000 houses are to be constructed with a total cost of Sri Lanka rupees 550,000. In the second phase, repair work of about 5,000 houses will be carried out.

The third phase will see the building of 6,000 homes out of which 4,000 are to be built in the central hill districts for people of Indian origin in the tea plantations.

Rambukwella said this was the formalisation of the Indian offer to build 50,000 homes for the displaced in Sri Lanka's war with the LTTE which ended in May 2009.

External Affairs Minister S M Krishna who will be visiting Sri Lanka soon will review the progress of the housing projects in the war-ravaged north.

India has been supporting projects for rehabilitation resettlement and well being of displaced persons in the areas of shelter, health care, livelihood generation, education and infra structure development in Sri Lanka's post conflict phase.