'They decided to stop damming of the gorge so as to preserve the integrity of the natural scenery at the gorge and ancient villages nearby,' sources familiar with the discussions at the meeting said.

Instead, authorities plan to move the dam 200km upstream to a Tibetan-populated area bordering Weixi and Deqin counties in Diqing .

The new location is expected to significantly reduce the number of people displaced by the project.

A 276-metre-high dam that could generate 88.3 billion kWh of electricity a year had been proposed on the Jinsha River at the gorge.

The plan has been shelved since 2004 following a rare public outcry.

The proposed dam was the biggest hydropower project along the Jinsha's middle reaches, and was to have been accompanied by seven smaller dams downstream.

More than 100,000 residents, mostly farmers from ethnic minorities in Shangri-la and Yulong counties, would have been evicted to make way for the project.

The new site, which had yet to be chosen from three options available, was expected to displace about 20,000 people, the sources said

The proposed damming of Tiger Leaping Gorge was also aimed at diverting water from the Jinsha to the centre of the province, including the provincial capital, Kunming .

The central government has deliberately maintained an ambiguous stance on the fate of the gorge since the State Council ordered an investigation in 2004 into allegations that construction had started without its approval.

But according to the sources, the Yunnan government made a decision as early as February to exclude Tiger Leaping Gorge from its ambitious hydropower development on the Jinsha.

Former water resources minister Wang Shucheng had told the South China Morning Post in April, shortly before his retirement, that the damming of Tiger Leaping Gorge was unlikely to go ahead. He said that despite the project's promising economic returns from power generation, the central government was highly concerned about its 'irreparable damage' to the local environment and the unique culture of the ethnic minorities.

Villagers have welcomed the scrapping of the controversial dam plan, which they had strongly opposed in a rare show of defiance against the powerful electricity developers and development-minded local authorities.

The prolonged debate over the proposed dam has seriously disrupted the local economy and people's livelihoods.

Villagers' opposition has attracted widespread attention since 2004. They even sent a petition letter to Beijing last year protesting against the damming of the gorge.

Muzzled in its reporting of the controversial project over the past two years, local media have been told not to report the scrapping of the dam proposal.