Sri Lanka's president has ordered the termination of a $1.5-billion Japanese-funded light rail project, saying it is not a "cost-effective solution" for the congested capital Colombo, officials said Thursday.

The deal signed under the previous government is the largest single foreign-funded infrastructure project in Sri Lanka, and was seen as a sign of the island nation reducing its dependence on China.

President Gotabaya Rajapaksa, elected last year, told the transport ministry to "terminate this project and close the project office with immediate effect", top aide P.B. Jayasundara said in a letter to the ministry.

There was no immediate comment from the Japan International Cooperation Agency (JICA), which in March last year loaned 30 billion yen ($285 million) to finance the first phase of the Light Rail Transit (LRT).

Japanese technology including rolling stock was to be used on the rail system, which included 16 stations over 15.7 kilometres (9.8 miles).

Detailed planning and land acquisition for the project in Colombo, which has some of the worst traffic congestion in South Asia, had already been completed and initial construction was under way.

The Japanese loan carries an interest rate of 0.1 percent and is repayable over 40 years with a 12-year grace period. Japan has already funded sections of new expressways and a key bridge to reduce traffic congestion in and out of the capital.

Under former president Mahinda Rajapaksa -- the incumbent's brother -- Sri Lanka borrowed billions of dollars from China for projects including ports, highways and railways.

But several ended up as white elephants and left the country facing a mountain of debt -- mainly to China -- stoking fears about Beijing's "Belt and Road" masterplan for overseas infrastructure.

Unable to service its loans, the then government of prime minister Ranil Wickremesinghe leased a Chinese-built port at Hambantota in the island's south to a Beijing company for $1.12 billion in 2017.