The Cabinet has approved a proposal by President Mahinda Rajapaksa to develop the Kankesanturai (KKS) port with Indian aid, the spokesman said.
A MoU is to be signed soon with the Indian government on the project.The port will be developed in two phases.A new breakwater will also to be constructed under the project.
KKS harbour was crucial to Sri Lanka's decades long military conflict with the LTTE.
It served as the only supply point for the troops stationed in the Jaffna peninsula.
The expansion of the KKS harbour would lead to enhanced commerce between India and Sri Lanka, officials said.
Infrastructure in the Jaffna peninsula was neglected during the country's three-decades-long ethnic war which ended in May 2009.