In a speech televised nationwide on Monday evening, Martin Torrijos said the expansion, approved by the board of directors of the Panama Canal, was "the most important decision about the canal and its role in the 21st century".

The project calls for the construction of a third set of locks of water chambers that will allow the large "Post-Panamax" class of cargo ships to use the 80km waterway between the Atlantic and the Pacific oceans.

Alberto Aleman Zubieta, administrator of the Canal, said the cost of the expansion would be about $5.3 billion.

Torrijos said all information on the expansion would be made available to voters before they give their verdict on the project in an as-yet-unscheduled national referendum.

The president - whose father, Omar Torrijos, negotiated the 1979 treaty that eventually gave Panama total control over the canal - appealed to Panamanians to support the expansion.

Fuelled by fears

So-called Panamax ships carrying 4,000 containers can now just barely fit through the 33-metre locks. The new third set would measure 54 metres wide to accommodate Post-Panamax ships which can carry twice as many containers.

The government's determination to widen the canal is fuelled by fears that newer, larger ships will seek other routes between the Atlantic and the Pacific, diminishing the income-generating capacity of the route across the Panamanian isthmus.

The Torrijos government also is counting on an economic windfall that would come from an estimated 7,000 jobs during the five-year construction.

Panama earned $1.2bn in fees in
2005 from 13,000 ship crossings

Recent polls indicate that a majority of Panamanians favour the expansion.

The government plans to court private bank financing for the project, which carries a price tag nearly the size of Panama's $6.5 billion annual budget.

In 2005, Panama earned $1.2 billion in canal fees, maintenance and other related services levied on some 13,000 ship crossings.

The canal, 32 metres above sea level at its highest point, uses a series of parallel locks to lift ships to Lake Gatun for the transoceanic passage.

The additional locks would require a system that retains part of the water now dumped into the oceans as the ships are lowered or lifted.

Panama took over the administration of the waterway on December 31, 1999, the day the US military presence in Panama ended.