By Hugh Collins

MEXICO CITY, June 14 (Reuters) - Mexico City, which sits on the marshy bed of a dried-out lake, will build a $1.1 billion drainpipe to prevent flooding in slum areas, the city's mayor said on Thursday.

Marcelo Ebrard said the project would relieve strain on drainage in crowded poor neighborhoods east of the capital, whose population has swollen in the past 20 years.

"The drainage facilities we've had in the past do not match the size of the population we have today," he said. "So this facility has to be built."

Modern day Mexico City was founded by the Spanish on the site of the former Aztec capital Tenochtitlan, a city built on largely manmade islands amid a lake in the valley of Mexico.

The soil around the city is nearly saturated and cannot absorb much water.

In the rainy season, parts of the city are often flooded and it is not uncommon to see cars floating through underpasses.

In central Mexico City many colonial-era buildings are visibly sinking in the damp soil, and the government has spent significant sums in recent years to prevent the capital's listing cathedral from collapsing.

The city sits atop a vast natural reservoir. The sinking is aggravated as water is sucked from the aquifer to satisfy the city's thirst.

Work on the drain will begin next year and be completed in 2012. The city also plans to upgrade existing drainage systems.

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