The five million US dollar factory is expected to be in production by January 2013 creating 1,200 jobs in an area where a 30-year war ended in 2009.
Sri Lanka's Board of Investment quoting unidentified company officials said the factory will have energy efficient air conditioners which will cut power use by a quarter, fuel efficient boilers and compressors.
The plants will also use solar cells and have net metering to sell excess power to the national grid.
The factory will use water efficient fixtures and will have storm water management system to get water.
"Environmental factors are an important variable which international investors take into consideration when making their choices," BOI chairman M M C Ferdinando said.
"Sri Lanka has the advantage of having high environmental standards. Already a number of companies that operate under the BOI regime have taken the lead by setting up green Factories."
Timex and Fergusam already have 17 plants in Sri Lanka employing 10,000 people exporint apparel to the European Union and the USA.