Laos has awarded Malaysian firm Giant Consolidated Ltd a 50-year concession to build and operate a 220km railway line.
At present the only railway operating in Laos is a short link to the Thai border, which opened in March 2009 with the intention of making international trade easier for the landlocked nation.
Construction of the new twin-track electrified line is expected to start in December and is scheduled for completion in June 2017.
GCL will invest $5 billion in the project over a period of 10 years.
Malaysian companies have invested a total of $165 million in Laos from 2000 to 2011.
According to the terms of the agreement, GCL will also build four main stations, seven general stations, a maintenance yard and a training centre for the Laotian employees.
When the concession expires, the line will be transferred to the Laos government.
GCL director Tock Min Kin said a company, LaoGiant Rail Co Ltd, would be set up to manage the concession. GCL will hold 90 per cent stake while the remaining 10 per cent will be held by the Laos government.
The project is expected to transform the transport system in Laos and boost economic activity in the land-locked country.
The agreement was signed on 4 November ahead of the ASEM9 summit of Asian and European leaders in Vientiane.
Delivering the keynote address at the summit, Lao President Choummaly Sayasone said that the Lao People's Democratic Republic was making efforts to develop basic infrastructure “to support the transformation from being a land-locked to a land-linked country connecting neighbouring countries and contributing to regional and international integration”.
The republic aims to attain the Millennium Development Goals by 2015 and graduate from Least Developed Country status by 2020, he said.