The project is partnered by the international sugar consultancy Booker Tate.
"We have not given approval for the project," says Udaya Gammanpila, chairman of the Central Environmental Authority of Sri Lanka.
"Their first application has been rejected and they have to submit a fresh application."
Environmentalists are warning that the project envisages clearing 23,000 hectares of state-land located adjacent to some of the last protected forests in the island.
They say past experience has shown that cane cultivation requires land to be drained of natural water sources severely altering the ecology of vast areas. The proposed project is near the Nilgala forest reserve.
Sri Lanka has seen several state-backed sugar projects fail and a partially s