Iran on Monday officially launched a $1-billion first phase of an ambitious project to pump water from the Caspian Sea to a city in its vast and expanding central desert, state media reported.

The initial phase will see a desalination plant and pipes built over the next two years to supply water to the desert city of Semnan, population 200,000, according to officials.

"The desert is growing... therefore we need to control its growth," President Mahmoud Ahmadinejad said in a speech in the northern city of Sari, near the Caspian shore.

The first phase would see water for drinking, irrigation and industrial use taken from the Caspian, treated to rid it of salt, and pumped to Semnan, 150 kilometres (90 miles) away to the south.

The first desalination plant to be built would have a capacity of 200 million cubic metres per year, or 548 million litres a day, according to Energy Minister Majid Namjou.

Khatam al-Anbiya group, the industrial arm of Iran's powerful military Revolutionary Guards which has interests in key economic sectors, is handling work on the project.

Later, two other phases are planned that would pump more water into desert areas from the Caspian Sea and from the Gulf, the media said.

Iran has operated several other desalination plants for decades for other regions.

Such seawater treatment facilities are also in use in other wealthy and arid Middle East countries, including the United Arab Emirates, Saudi Arabia and Israel, to augment scarce water supplies.