Russia's concern about water rights is holding up a $1 billion loan package Mongolia is seeking from China to build a hydroelectric dam that would help the landlocked central Asian nation ensure independent supplies of energy.

The Kremlin said in June the project to build the Egiin Gol Hydro Power Plant on the Eg River in northern Mongolia could threaten Lake Baikal 580 kilometers downstream. China is withholding funds until a compromise can be found with Russia, according to Mongolian government documents seen by Bloomberg News.

Mongolia wants to build the 103 meter high dam to generate more power during peak times and in the winter, easing its reliance on electricity from Russia and dependence on coal-fired generation. Its power imports from Russia cost the nation of 2.8 million people more than $25 million a year.