Indonesia will re-locate 10 million people from its capital city of Jakarta to the sparsely populated eastern edge of Borneo island.
Jakarta is one of the fastest sinking cities of Earth, which experts say that one third of the city will be submerged by 2050.
President Joko Widodo announced that it was "urgent that relocation plans commence", although the capital would not physically begin to be relocated until 2024.
Jakarta is sinking by 17cm a year, faster than anywhere else in the world, because of rising sea levels caused by climate change.
The city is prone to floods and is sinking due to subsidence, caused by millions of residents using up groundwater.
Pollution has reached unhealthy levels, with efforts to decongest the city making little progress with tens of thousands of cars getting added to the roads every year.
The new location, which does not yet have a name, is near the existing Samarinda City and the port city of Balikpapan, important for coal and oil shipments.
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“It is a strategic location at the centre of Indonesia, close to growing urban area,” President Widodo told reporters at the Jakarta state palace.
Experts have said that the ambitious plans are very risky as they could fall into the same situation in another location.
The Indonesian side of Borneo is known for its swaths of rainforests and could imperil the habitats of endangered wildlife, including orangutans.
The World Wildlife Foundation (WWF) says that the natural habitat of these critically endangered animals has dropped 55% in 20 years.
Jasmine Putri, Greenpeace Indonesia campaigner said: "The government must make sure that the new capital is not built in a conservation or protected area."
The government will submit a bill, and the result of a feasibility study, to parliament to obtain approval for the new capital, President Widodo said.
Planning Minister Bambang Brodjonegoro said land acquisition would start in 2020.
The government already owns some 180,000 hectares (445,000 acres) of land in the location.