The link will connect the Tibetan city of Xigaze with Nepal's capital, Kathmandu, the paper said.
The two sides signed more than 10 agreements involving technology, transportation, infrastructure and political cooperation, according to a notice posted on China's official government website on Thursday.
China would also like to work with Nepal to build a "cross-Himalayan connectivity network" through aviation, trading ports, highways and telecommunications, China Daily quoted Chinese Premier Li Keqiang as saying.
In an interview with state-run Chinese tabloid Global Times on Friday, Oli said "cross-border connectivity" was Nepal's top priority, and he called for the two countries to work together to develop Nepal's hydropower resources.
Nepal has already scrapped a $2.5 billion deal with China's state-owned Gezhouba Group to build a hydropower facility in the west of the country.
Oli told the Global Times that nothing had been decided yet and the West Seti project was still under consideration by Nepal's investment board.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)