Sri Lanka on Monday approved a proposal by China's Sinopec to build a $4.5 billion refinery, its energy minister said, making it the largest single investment in the island nation since a crippling economic crisis last year.

The cabinet approval cleared the state-owned refiner to finalise project details and sign an agreement with the government before it starts building the export-oriented refinery at Hambantota in the south of the country.

"Cabinet approval was granted today to award the contract to China Petroleum & Chemical Corporation (SINOPEC) of China," Minister Kanchana Wijesekera wrote on social media platform X.

China is Sri Lanka's biggest bilateral lender and its companies have built highways, sea and air ports and other infrastructure projects on the island off India's southern coast.

For Sinopec, the world's top refiner by capacity and one of the largest petrochemicals producers, the investment would mark a breakthrough in a long effort to expand beyond China's borders. The company also owns refinery assets in Saudi Arabia and petrochemicals production in Russia.

Iran built Sri Lanka's only refinery at Sapugaskanda in the west of the country in 1969. The refinery can process 38,000 barrels of oil per day.