BEIJING, June 16 (Reuters) - Former Chinese Premier Li Peng has spoken out in defence of the nation's controversial Three Gorges Dam project amid widespread criticism over its environmental and social impact.

In rare comments published by a local paper run by the ruling Communist Party, Li, 78, said the decision to begin creating the world's largest hydroelectricity project in 1997 could only have been the right one.

Li praised the contributions made by those displaced by the project to the economic fortunes of Chongqing municipality, a burgeoning urban sprawl which lines the flood-prone Yangtze River.

References were made by the paper to dated comments by Li who has said Chongqing's rapid development offered proof the central government had made the right decision in building the dam.

Li was visiting Chongqing.

The $25 billion project is still a work in progress, but state media have said it could be completed by the end of 2008, a year ahead of schedule.

The damn, whose aims include taming the Yangtze's floods, which have drowned countless thousands over the centuries, has been mired in controversy.

Many environmentalists say the dam's reservoir will become a cesspool of sewage and industrial pollutants and that the creation of such a huge artificial body of water could have unforeseen ecological effects. Millions of residents have been forced to leave their homes.

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