The project involves an outlay of Rs 1,259.38 crore, the government said.
Currently, there are two desalination plants each with a capacity of 100 million litre per day (MLD) catering to the 10 lakh residents of North Chennai and nine lakh residents of South Chennai.
According to the government, the new plant that would come up near the existing one on 10.50 acre at Nemeli on East Coast Road expected to go on stream in 2021 and would cater to nine lakh residents.
The German agency KFW provides a debt of Rs 700 crore and the balance will be obtained as subsidy under the Atal Mission for Urban Rejuvenation and Transformation (AMRUT) of the Central Government.
Meanwhile, the Chennai Metropolitan Water Supply and Sewerage Board has issued a Request for Interest for setting up three small Sea Water Reverse Osmosis desalination plants each with a capacity of 10 MLD.
Currently, Chennai which needs about 830 MLD is facing acute water shortage with the reservoirs catering to the city's needs have dried up.
While Cholavaram (full capacity 1,081 mcft), Redhills (full capacity 3,300 mcft) and Chembarambakkam (3,645 mcft) lakes that supply water to Chennai have run dry, there is only 18 mcft water left in Poondi reservoir (against a full capacity of 3,231 mcft), according to the Chennai Metropolitan Water Supply and Sewerage Board.
( With inputs from IANS )