The Nicaraguan Congress has approved a proposal to have a canal built linking the Pacific and the Atlantic Oceans.
A Hong Kong-based company has been granted a 50-year concession to build the waterway, which will rival the Panama Canal.
The $40bn (£25bn) plan has been criticised by environmentalists, who say cargo ships will create a permanent risk to Lake Nicaragua.
But President Daniel Ortega says the project will bring prosperity.
Nicaraguan leaders have for centuries dreamt of building a canal linking its Caribbean coast to the Pacific.
Several initiatives failed and the project suffered what seemed to be a final blow when the United States decided to build a canal in Panama, which opened in 1914.