A $44.5 MILLION scheme for 2,350 public housing flats, a school and a freshwater pumping station on Diamond Hill was approved by legislators yesterday. The Public Works subcommittee approved the redevelopment, due to start in October with completion by the end of next year. Factories and squatter huts housing 1,235 will be cleared from the site. Asbestos will be removed at a cost of $4.5 million. Legislators also approved a $225.4 million project to enlarge sewage treatment facilities in Yuen Long, where the growing population is expected to quadruple by the year 2005.