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"India has extended a 425 million dollar concessional credit line and this is part of Indian government efforts to assist in reconstruction activities in Sri Lanka," Ashok Kantha, Indian high commissioner to Sri Lanka told reporters in Colombo.
A 56 kilometre stretch of railway between Pallai and Kankesanturai is expected to be completed with Chinese funding.
"We are still negotiating with the China Railway Number Five group," Wijesekara said.
Indian Ministry of Railways owned company IRCON International has been contracted to complete the 90 kilometre stretch running from Omanthai in Vavuniya to the Pallai over a two and half year period in a 185 million US dollar deal.
A three decade separatist war has disrupted rail services in the north since 1987.
Currently, the last passenger station on the northern railway line is in Vavuniya.
Work is expected to begin in the first quarter of 2010, P Wijesekara, general manager of the state-run railways said.
The northern railway trac