Some modern ships are too large to pass through the Panama Canal

President Enrique Bolanos said the new route - which would cost $18bn (£9.5bn) and take 12 years to complete - was needed for the rise in world shipping.

Panama is due to vote in three weeks on whether to expand its own canal, to let larger ships pass and cut queues.

Nicaragua sought to play down fears its canal would compete for the same trade.

Speaking to Western defence ministers meeting in Nicaragua, Mr Bolanos called for international backing for a project he said would bring new economic life to the region.

"The galloping increase in world business demands another canal in addition to a widened Panama Canal," he said.

Super-ships

If built, the Inter-Oceanic Nicaragua Canal would cut time and several hundred miles off the route from China to Europe or North America.

Nicaragua has long held dreams of its own canal and was considered a potential route before the Panama waterway was constructed.

Panamanians will vote in a referendum on 22 October on whether to upgrade their canal, in what would be the biggest expansion since it opened in 1914.

Some modern ships are now too wide to go through the canal, and those ships that can pass have to queue for hours.

Under the proposals, wider locks and deeper and wider access canals would enable the canal to take ships carrying up to 10,000 containers. At present the limit is 4,000 containers.

However, critics argue that when the work is finished in 2014-15, the Panama Canal will still be inadequate, causing it to miss out on business.

The 80km (50-mile) waterway, which is used mainly by the US, Japan, China and Chile, currently handles nearly 5% of global trade.