In December last year, Sri Lanka handed over the control of the southern sea port of Hambantota to China on a 99-year lease for USD 1.12 billion, amid concern over Beijing's efforts to expand influence in the region.
Opposition leaders have dubbed the deal as a sell out to China.
The SundayTimes reported that the last tranche of USD 585 million has been held back by China's state-owned China Merchants Port Holdings which want the land to be used for entertainment purpose.
However the Sri Lanka Ports Authority insists that the facilities at Hambantota should only be used for marine and port-related activities and not for entertainment tourism purposes, the report said.
It quoted the Chinese firm as saying that the money would only be transferred after the issue is resolved.
Rajapaksa's administration had been criticised heavily for high commercial borrowings from China.
The other project in Hambantota funded by the Chinese, the Mattala Rajapaksa International Airport is already in trouble.
Dubbed as the world's emptiest airport, its only flight operation, the service of Fly Dubai, was halted this week.
The company cited commercial and flight security reasons for halting the service as birds had hit their planes often.