ISLAMABAD, May 21 (Reuters) - Pakistani President Pervez Musharraf presided on Monday over a ceremony to mark the beginning of construction of a new town to replace one almost completely destroyed in a 2005 earthquake.

The northern town of Balakot suffered the most severe damage in the Oct. 8, 2005, earthquake that killed 73,000 people in Pakistan. Rather then rebuilding it on two fault lines, authorities are moving the town to a site 22 km (15 miles) away.

"Balakot has been totally destroyed and devastated. Now an excellent and properly designed town will be built in place of Balakot," Musharraf said in a speech at the site of New Balakot.

The 7.6 magnitude earthquake was Pakistan's worst disaster.

Nearly a quarter of Balakot's 40,000 people were killed when the quake struck, many of them children who had just begun classes when the walls and ceiling of their schools caved in.

Millions of people were left homeless and many of them are still putting their lives back together.

Musharraf said a huge relief effort mounted by the United Nations, the Pakistan army and foreign and domestic aid agencies had averted a second disaster.

"When I first flew over this area after the earthquake, I could not see roofs on most of the houses. Now I can see tin-roofs on most of the houses. It's a big achievement in just one-and-a-half years," he said.

The $200 million New Balakot project will be completed in three years and will initially provide accommodation for about 50,000 people, the state-run APP news agency said.

The new town, to be built over an area of 1,425 acres (575 hectares), will have the capacity to provide housing for more than 2.5 million in 25 years, APP said.

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