A crucial water source for China's massive water diversion project, the Danjiangkou Reservoir, is facing problems with pollution, says a local government official.

The South-North Water Diversion Project aims to transfer 1,582 billion cubic feet of water annually from the country's water-rich south to drought-prone northern China.

The project, expected to cost $81 billion, is considered the biggest engineering endeavor in Chinese history, and involves a mix of canals, tunnels and aqueducts spanning thousands of miles across the country. Sans pumps, it will rely entirely on gravity to run water from the south's higher elevations, to the north.

The Danjiangkou Reservoir marks the beginning of the project's middle route and is expected to start supplying water to the north by 2014.

A water pollution plan issued by the State Council, or China's cabinet requires that the water quality for all five rivers that flow into the Danjiangkou meet a "grade III" standard by 2015.

But four of those rivers are now rated "grade V," deemed for "agricultural use only" and the fifth river is considered "grade IV," for "industrial use only," reports China's state-run news agency Xinhua.

"The target is very unlikely to be met as many pollution control projects lag behind schedule due to a fund shortage," said Cheng Jiagang, vice mayor of Shiyan in Hubei province.

The local government is short of $486 million needed for a sewage treatment program to clean up the rivers so the "grade III" target can be achieved, including 687 miles of sewage pipelines to collect all waste water, Cheng said.

As part of its effort to improve the pollution problem, Shiyan has shut down 329 factories in the last few years, but that has cut its revenues by $130 million annually, he said.

Meantime, 1.3 million tons of waste water is discharged directly into the five rivers each day.

"The task is arduous and urgent," said Zhou Ji, the Communist Party chief of Shiyan. "We hope the general public, particularly the beneficiaries in the northern areas, will take note of our challenges."

Zhou told the newspaper a compensation mechanism should be established for the area whereby the northern regions that will benefit from the water diversion project help fund the needed environmental protection, as well as to improve the livelihood of 180,000 villagers who were relocated.

A report in The Epoch Times earlier this month noted as part of the scheme to divert water to northern China, both the middle and eastern routes of the project "will cross many polluted, dead fish and sewage-ridden channels and multiple hot spots for cancerous outbreaks."