Speaking to reporters after a cabinet meeting, Chief Minister Oommen Chandy said the project, estimated to cost Rs 400 crore, was necessary to improve the irrigation facility and help develop backward areas in Palakkad district.
A detailed project report would be submitted to the Centre for Environment clearance, he said.
On Tamil Nadu's objection to the project, Chandy said it was without knowing the facts.
"Construction is within the rights of the state. What we are doing is only legal. We are not carrying out anything irregular," he said.
Chandy also said local people had submitted a memorandum to KPCC president Ramesh Chennithala, demanding it be implemented.
The project envisages building a dam across Siruvani river in Chittoor taluk of Palakkad district with a capacity to store 65 million cubic meters of water to irrigate 4,900 hectares and generate 3 MW power.
It would provide drinking water to all panchayats in the Attapadi area, which has a string of tribal settlements.
The project was first mooted in 1970. But it did not take off due to several reasons like paucity of funds,environmental objections and pending dispute over sharing of Cauvery waters.
Certain initial measures like construction of workers quarters, approach road and rehabilitation of 51 tribal families have already been completed at a cost of Rs 14 crore.