The scheme dates back to the 1970s but has suffered from economic and political turmoil, and financial difficulties. It has previously been suggested as the possible site for a new capital city, although President Abdelaziz Bouteflika quashed such speculation last year.

According to sources close to the scheme, the city will cover an area of more than 2,150 hectares at Bougzoul, 250 kilometres south of Algiers on the country’s central plateau. It will provide housing for up to 300,000 people.

A consortium of South Korean contractors, led by Daewoo Engineering & Construction Company, is in line for the initial site preparation and basic infrastructure works after submitting the strongest bid for the estimated $650m contract.

According to Daewoo, the work involves constructing roads, electricity and gas networks, communications systems and sewage lines, and will take about three years to complete.

The other members of the consortium are Samwhan Corporation and Woolim Company, also of South Korea.

In December 2005, the official news agency APS said Algiers was considering moving the seat of government. However, in late 2007 President Bouteflika denied this. “The capital has its problems, but there are no plans to change the capital,” he said.