The deep-sea jetty deal was signed in May 2019, a few months before President Gotabaya Rajapaksa came to power.

The government said in a statement that it would instead develop the site “as a wholly-owned container terminal of the Sri Lanka Ports Authority” for US$800 million.

The decision marks a U-turn from the statement made by Rajapaksa over two weeks ago, when he said the project would go ahead, citing “regional geopolitical concerns”.

It also comes the day after the Indian High Commission in Colombo called on the government to honour its obligations on the deal.

Sri Lanka had previously said the port would be 49 per cent operated by India and Japan, with SLPA retaining the majority stake.

When Gotabaya Rajapaksa’s brother Mahinda – who is now the prime minister – was president between 2005 and 2015, Colombo borrowed billions from China, accumulating a mountain of debt for a string of infrastructure projects.

With credit agencies cutting Sri Lanka’s debt ratings as the island nation reels from the economic impact of its pandemic lockdowns and the 2019 deadly Easter bombings, the government is expecting more Chinese loans this year.

In December 2017, unable to repay a huge Chinese loan, Sri Lanka allowed China Merchants Port Holdings to take over deep-sea port in Hambantota, which straddles the world’s busiest east-west shipping route.

The deal, which gave the Chinese company a 99-year lease, raised concerns at home and abroad.

India and the United States are both concerned that a Chinese foothold at Hambantota could give Beijing a military advantage in the Indian Ocean.

India lodged protests when Chinese submarines made unannounced visits to the Colombo terminal in 2014. Since then, Sri Lanka has not given permission for further submarine calls.