Energy-hungry Cambodia on Friday gave the green light to a multi-million dollar hydropower dam backed by companies from China and Vietnam that activists say will affect thousands of people.

The Hydro Power Lower Sesan 2 project will invest $781.5 million to build a 400-megawatt hydroelectric dam on a tributary of the Mekong River in northern Stung Treng province, according to a government statement.

The government did not name the Chinese and Vietnamese firms involved, but said solutions had been reached for affected villagers.

Prime Minister Hun Sen also ordered authorities and the company to build new homes and prepare land for an unspecified number of families that would be resettled for the project, according to the statement.

Activist Meach Mean, coordinator at an environmental group 3S Rivers Protection Network, estimated more than 50,000 people would be affected by the dam.

"We are surprised by the approval," he told AFP, calling on the government and the company to hold a public forum to discuss concerns before going ahead.

"We don't know clearly about the process to build the project," he said. "We are really concerned about the impact on the people's livelihoods, water, and ecology system."

UN human rights envoy Surya Subedi also raised concerns about the dam in a report in September, saying communities reported they had not been adequately consulted about the impact of the project.

Cambodia late last year opened the country's largest hydropower dam to date, a more than $280 million Chinese-funded project that has attracted criticism from environmental groups.

Spiralling utility prices, driven by the lack of supply, are a major obstacle for Cambodia to attract foreign investment, and the government has struggled to find a way to bring down the cost of power.

Nine dams, including at least four funded by China, are set to open by 2019, and once they are all operational the government says they will generate 2,045 megawatts of power, serving all Cambodia's provinces.