The basin, which is being filled in under Phase II of the Central reclamation, will be the largest flat area on the district's waterfront at the time.

The Governor would also be able to embark from the north arm of the basin to leave on whichever visiting British ship - either the Royal Yacht Britannia or an aircraft carrier - is chosen to take part.

The People's Liberation Army (PLA) would have a good view of events from the adjacent Prince of Wales Barracks. The barracks will officially be taken over at midnight on June 30, 1997, but an advance party of PLA officers will already be in place well before the handover.

The midnight ceremony would be the highlight of days of commemorations to mark the handover, but its details are still to be worked out.

Governors of Hong Kong Stadium have informally discussed keeping the arena free to accommodate events and the Hong Kong Convention and Exhibition Centre in Wan Chai is also hoping its new waterside annexe and harbour-front area will play a part.

However, sources said the government committee, chaired by Chief Secretary Anson Chan Fang On-sang, favours the Central site.

It decided on a location after little progress was made following the committee's first meeting at the beginning of the year. The hiatus was said to have been caused by a reluctance to take the lead over China's suggestions.

But new impetus has come with the recent agreement in London between British Foreign Secretary Malcolm Rifkind and his Chinese counterpart, Qian Qichen, to finalise 'solemn, grand and decent' arrangements.