The Vietnamese cabinet has approved the construction of a controversial hydroelectric dam which would force the relocation of up to 90,000 people.

The proposed project is a slightly scaled-down version of plans that sparked an acrimonious debate in the country's national assembly.

MPs in March postponed a vote against the government plans, criticising the human and environmental costs.

If the national assembly next month approves the smaller hydroelectric dam, construction could begin in 2005 and take up to 15 years.

Initial plans for a 265-metre-high dam have been scaled down to 215 metres in an attempt to appease critical MPs.

The proposed dam is to be built in the Muong La district of the north-eastern province of Son La. The region is prone to earthquakes - another factor that has worried some MPs.

Industry is leading a growth in demand for power

Critics fear the dam could cause potentially devastating flooding downstream on the Da River.

The power station would have a capacity of 2,400 megawatts and cost up to $2.7bn, said Vu Duc Thin of state-owned Electricity of Vietnam.

He said 70% of the money to fund the project would come from domestic sources and 30% from foreign loans.

But some diplomats have said Western lenders may be reluctant to finance a project that forces thousands of people from their homes.

Consumption of electricity in Vietnam has grown on average by 14-15% a year in recent years led by economic and industrial expansion.