Dubai said on Saturday that it will award contracts for the $408m Business Bay Canal Project - which is likely to include floating hotels and restaurants - by the end of 2012.

Construction work on the plan, which aims to create a new tourist hotspot in the emirate, is slated to start in the first quarter of next year, the Roads and Transport Authority said in a statement.

Work on extending the canal from Sheikh Zayed Road to the Arabian Gulf is expected to be completed in two years.

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Mattar Al Tayer, chairman and executive director of the RTA, said he has inspected the path specified for the canal and has also reviewed the facilities and houses impacted by the project.

Al Tayer said that a comprehensive study of the traffic impact would be carried out "to ensure a smooth traffic flow", adding that Sheikh Zayed Road "must not be impacted".

The construction of the project requires the construction of bridges on the key roads intersecting the canal, he said.

Al Tayer said he hoped the project would "boost the odds of Dubai bid for winning the hosting of the World Expo 2020".

Last month, Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum endorsed plans for the project which could see floating hotels and restaurants built to line the canal.

The project, which is being undertaken by the RTA, encompasses the extension of the water canal from the Business Bay to the Arabian Gulf in a waterway stretching 2.8km.

The canal will cross Sheikh Zayed Road and pass across Safa Park, Al Wasl Road, and Jumeirah 2 before reaching the sea - creating a waterway for leisure navigation.

The project has been divided into three contracts - the first covers drilling and landscaping works as well as the construction of marine transit stations.

The other two contracts relate to road and bridge projects, and the entire project is set for completion in early 2015.

The RTA will also carry out improvements to key roads intersecting the canal as well as the surrounding areas such as Jumeirah and Al Safa.

Tracks dedicated to jogging and cycling will also be constructed along both sides of the canal, alongside extensive landscaping works and tourist-oriented projects.