The project covers sub standard settlements along Justice Akbar Mawatha, Beira lake, Don Carolis compound and the Slave Island railway station.
The UDA said dwellers in the Slave Island area will get better housing in the same area of residence without them being moved to a new location hampering their livelihoods and schooling for children.
The total project is estimated to cost six billion rupees, the UDA said.
Imperial builders (Pvt) Ltd, a Pakistani based construction company will initially invest twenty five million US dollars to kick start the project and in return will look at doing some mixed development on the remaining land.
"We plan to bring twenty five million dollars to this country from Pakistan. This is the first phase and if we are short of funds we will bring more," Naveed Hussain Lakhani, chairman of Imperial Builders said.
"Relocation will cost us approximately fourteen million dollars," he said.
Authorities have allocated 1.5 acres of land belonging to the UDA and Sri Lanka Railways formerly known as Ceylon Government Railway for the relocation project.
Four towers comprising of hundred and seventy apartments including shops will come up at the location with two independent blocks for railway staff and residents with commercial establishments.Housing units starting from a minimum five hundred to two thousand three hundred and sixty square feet will be built under the project.
The value of a housing unit of around 1800 square feet will be around six million rupees and ownership of properties will be under the condominium law, Imperial Builders said.
The company said negotiations are underway with the UDA to lease the remaining 1.5 acres for commercial development which will also include a shopping and leisure area for tourists.
"For the private land we are planning to build a shopping mall, indoor games and budget apartments for people who find it difficult to buy an apartment in Colombo," Lakhani said.
Land in the Slave Island area is valued at around four to five million a perch.
The UDA said land for commercial development will be offered to the investor at market price on a fifty year lease term.
"Still negotiations are going on and we haven't valued the land for private development yet," Prasad Ranaweera, Deputy Director of the UDA said.
The first stage of the housing project involving India's TATA group is going ahead, the UDA said.