Sri Lanka police fired teargas to disperse hundreds of people protesting the launch Saturday of a special industrial zone in the island's south that hopes to attract billions of dollars in Chinese investment.

Protesters pelted government supporters with stones and police retaliated with teargas and water cannon at the launch, which was also attended by the prime minister and the Chinese ambassador, a police official told AFP.

Authorities said about 25 people were hurt in the skirmishes, including 12 police.

Prime Minister Ranil Wickremesinghe and ambassador Yi Xianliang said the zone in Hambantota, 240 kilometres (150 miles) south of Colombo, will generate thousands of jobs and bring in about $5 billion in Chinese investment.

But residents are afraid they will loose their land to the project, which is situated adjacent to a loss-making $1.4 billion harbour that Colombo hopes to turn into a joint venture with a Chinese company.

The port has already proved controversial in itself with hundreds of temporary dock workers going on strike in December demanding that they be absorbed into the main port-owning company ahead of any sale to the Chinese.

The government denies residents will lose any land to the new industrial zone, saying 95 percent of the area allocated for the project is state-owned and the remainder will be bought from private owners. They say there will be no forced acquisitions.

"In the next two to five years, if everything is OK, there will be about $5 billion of (Chinese) investments in this zone," ambassador Yi said at the launch, adding that 100,000 jobs could be created.

Prime Minister Wickremesinghe said creating the special area for Chinese investors was aimed at making the debt-burdened Hambantota port viable.

"The Hambantota port was going to sink us (Sri Lanka), but we are now trying to leverage it to create new economic activity and boost growth," Wickremesinghe said.

The government, which came to power in 2015, has been trying to renegotiate the terms of its $8-billion Chinese debt, which includes the construction costs of the Hambantota port as well as a nearby international airport which is used by only one airline.

The former administration relied heavily on China to build ports, highways and railways as Western nations shunned it over its dismal human rights record.