The rail line will pass through Ceke, the second largest port of entry between China and Mongolia.
It will be 1,435 mm in width, the standard gauge in China, state-run Xinhua news agency reported.
The Mongolian standard gauge is 1,520 mm in width, which causes extra costs for cargo trains travelling between the two countries.
The rail line is expected to help Ceke port become the biggest port of entry between China and Mongolia, with annual cargo throughput of more than 30 million tonnes.
The port started seasonal operations in 1992 and officially opened in 2009.
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