China's environmental watchdog has halted the construction of two dams on the Yangtze river, putting in jeopardy a 29 billion dollar plan to harness the waterway, state press said Friday.

The Ministry of Environmental Protection shelved the plan after discovering that construction of the two dams in southwest China's Yunnan province had started without the mandated environmental approval, the China Daily said.

The Ludila and the Longkaikou dams, both of which were already under construction, were being built by China's two biggest power companies, China Huadian Corporation and China Huaneng Group.

The Yangtze is China's longest river.

"Building dams without proper designs and environmental protection measures would damage the water ecology, both upriver and downriver, and negatively impact local communities," the report quoted a ministry official as saying.

The two dams are part of a 200 billion yuan (29 billion dollar) plan that calls for eight cascading hydropower stations to be built on a 560 kilometre (350 mile) section of the river, it said.

The dams were slated to produce 20 gigawatts of electricity, equal to the output of the Three Gorges Dam, the world's largest hydroelectric project, the paper said.

The environmental assessment reports of two of the other dams have already been approved, it added.

China is in the process of building at least 20 new hydroelectric projects or reservoirs on the Yangtze by 2020, the government said earlier this year, as the nation seeks to diversify its energy mix away from polluting coal, its main source of power.

But environmentalists and rights groups have warned of ecological damage and the forced relocation of residents.