COLOMBO - Sri Lanka witnessed the largest foreign direct investment project in the country of $500 million on Friday, a minister said.

A consortium consisting of China Merchants Holdings International Company and local conglomerate Aitken Spence was awarded the tender for the construction and operation of the Colombo South Harbor Expansion Project.

The deal, which is valued at $500 million, includes building a container terminal that will considerably enhance the capacity of Sri Lanka's main port.

The ground breaking ceremony for this terminal was flagged off by Sri Lankan President Mahinda Rajapaksa in the midst of many Chinese and local dignitaries including Chinese Ambassador to Sri Lanka Yang Xiu Ping.

"We are indeed proud to be the major stake holder in the development of the South Container Terminal, whilst being a stimulant to other major investors to Sri Lanka. On completion it would stand out to be one of the best terminals in Asia," said China Merchants Group Chairman Fu Yuning at the ceremony.

He also commended the Sri Lankan president for his efforts in ending the three decade long war in 2009 and steering the economy with massive infrastructure projects, most of which are funded by China.

Both he and the Deputy Ports Minister Rohitha Abeygunawardene pledged to enhance relations between the two countries.

China Merchant Holdings will provide a shareholder loan facility of up to $350 million with the rest of the capital to be raised by shareholder equity.

The first 600m quay of the container terminal is expected to be ready for operations by early 2014 while the remaining two stages are to be completed in 2016.