The Board of Investment said it gave approval for the venture by Blue Continent to set up the resort in a 15-acre land.
The resort will start operations by December 2011 in time for next year's peak tourist season on the island which coincides with the northern hemisphere winter.
Tourist arrivals into Sri Lanka have increased sharply after the end of its 30-year ethnic war in May 2009.
A flood of new investments in tourism projects are in the pipeline with economic growth seen accelerating to seven percent this year.
The BOI statement said it also approved a 3.3 million dollar project to refurbish and upgrade Seashells Hotel at Kochchikade, on the west coast north of Colombo.
The number rooms at Seashells Hotel will be increased to 84 and a spa, an extra pool and conference facilities added.
"Refurbishment operations are expected to be completed by November this year," the BOI said.
BOI approval entitles investors for tax holidays and duty free imports of machinery a