The waters of the Mhadei are shared by Goa, Karnataka and Maharashtra.
The clearance comes in face of the Goa government stand that the project was in violation of the award given by Mhadei Water Disputes Tribunal.
The Union Environment Minister Prakash Javadekar tweeted on Wednesday that his ministry had granted EC to the project.
"On the follow up of my cabinet colleague @JoshiPrahlad, Kalasa-Banduri drinking water project in #Karnataka has been granted Environment Approval," Javadekar tweeted.
The development sparked a political assault on Sawant's leadership.
Former Deputy Chief Minister Vijai Sardesai, who heads the Goa Forward party, accused Sawant of failing the state by not taking up its case against the Kalasa-Banduri project with the Central authorities with adequate vigour.
"There's no better way to kill Goa's flora and fauna than to build on Mhadei and divert water. Something the former CM Parrikar realised as dangerous. What is the current CMs stand? Goa and Goemkars who love Mhadei as their own mother are waiting for an answer!" Sardesai said.
"Shocked and outraged that Environmental Clearance has been given to Kalasa-Banduri Project by Union Government This is no drinking water project. This is 'Kill Mhadei River Project'... The diversion of water from Mhadei is inexcusable unjustified & an affront to all Goemkars," Sardesai said.
When asked about the development, Chief Minister Pramod Sawant was circumspect.
"I will study the matter before commenting. I will go through the matter. I am not sure what has happened," Sawant said.
The Mhadei, or Mandovi, river, is known as a lifeline in the northern parts of Goa. It originates in Karnataka and meets the Arabian Sea in Panaji in Goa, while briefly flowing through Maharashtra.
The Tribunal hearing the over two-decade old dispute between Goa, Karnataka and Maharashtra over Mhadei river water sharing had, in its award in August 2018, allotted 13.42 thousand million cubic feet (TMC) from the Mhadei river basin (including 3.9 TMC for diversion into the depleted Malaprabha river basin) to Karnataka. Maharashtra has been allotted 1.33 TMC.
Both Karnataka and Goa have publicly expressed reservations about the Tribunal's award and have also approached the Supreme Court for relief.
The Goa government in a petition to the Court has also accused Karnataka of "illegally" building infrastructure in its jurisdiction, to divert additional water from the Mhadei river basin.
( With inputs from IANS )