Each beneficiary would be given 550,000 rupees (230,000 Indian rupees) for a new house in installments and 250,000 rupees (104,000 Indian rupees) to repair, based on an assessment of the actual damage.
The project was launched by Sri Lanka's economic development minister Basil Rajapaksa and India's envoy to Ashok K Kantha, the Indian High Commission (embassy) said in a statement.
The reconstruction was being done on an 'owner driven' model where the beneficiaries manage the reconstruction of their homes.
A pilot project involving a 1,000 houses had been completed in July and 1,500 beneficiaries under the current project had already been given a first installment of 100,000 Sri Lanka rupee.
High Commissioner Kantha was quoted as saying that by August 2013, 10,000 houses are expected to be completed, and the total 50,000 targeted under the project would be completed within three years.