New Delhi, Sep 17 - The government Thursday approved a Japanese soft loan for the Rs.26,124 crore ($5.4 billion) dedicated railway freight corridor stretching 1,483 km from Navi Mumbai to the national capital, an infrastructure project that has been described as 'iconic'.

'The cabinet today (Thursday) approved the proposal for availing Japanese ODA (overseas development assistance) for implementing the western corridor of the DFC (dedicated freight corridor) project,' Information and Broadcasting Minister Ambika Soni told reporters after a cabinet meeting chaired by Prime Minister Manmohan Singh.

'The first phase of the assistance is estimated at Rs.17,700 crore for the Rewari-Vadodara section. To start with, an engineering services loan of approximately Rs.130 crore will be received,' Soni added.

The western DFC will stretch from the Jawaharlal Nehru Port Trust in Navi Mumbai to Dadri in Uttar Pradesh on the capital's outskirts through Maharashtra, Gujarat and Rajasthan.

'The loan comes at a very low interest of 0.2 per annum, a long repayment period of 30-40 years and a moratorium of 10 years,' Soni said.

Under the terms of the loan, the prime contractors for the project must be Japanese firms.

'Joint ventures with firms incorporated and re-registered in recipient countries are also allowed to be prime contractors, provided a Japanese firm is a lead partner. Sub-contractors may be from any country,' Soni pointed out.

This apart, not less than 30 percent of the total amount of contracts (excluding consulting services) financed by the loan must be accounted for by goods and services from Japan.