Hong Kong-based South China Morning Post yesterday said that Chinese engineers were testing techniques that could be used to build the tunnel, the world's longest.
"This is untrue. This is a false report," Chinese Foreign Ministry spokesperson Hua Chunying told a media briefing when asked about the report.
China will continue to attach great importance to cross-border river cooperation, she said.
According to the report, the proposed tunnel, which would drop down from the world's highest plateau in multiple sections connected by waterfalls, would provide water in China's largest administrative division, comprising vast swathes of deserts and dry grasslands.
The water would be diverted from the Yarlung Tsangpo River in southern Tibet, which becomes the Brahmaputra river once it enters India, to the Taklamakan desert in Xinjiang, the report had said.
India as riparian state has already flagged its concerns to China about various dams being built by it on the Brahmaputra river, which is known in China as the Yarlung Tsangpo.
Beijing has been assuring India and Bangladesh that its dams were not designed for storing water.