This is the first time such an admission is being made over the project of the Communist regime.
Everything about the Three Gorges is on a grandiose scale. The dam is coming across the Yangtze which is the country's biggest river.
And it will be part of what is touted as the world's largest hydro-electric project, set to cost $25 billions and expected to be completed by the end of 2008.
The number of those likely to be displaced by the dam could run into at least four million persons, that is as per official estimates.
To complete the grim picture, the environmental devastation feared would be on an unprecedented scale - landslides, soil erosion, pollution and so on.
While the dam has served as a barrier against seasonal flooding threatening the lower reaches of the Yangtze River and the electricity generated by hydropower has led to a decrease of 100 million tons of carbon emissions, the benefits have come at an ecological and environmental cost, officials said.
All the participants in a two-day forum last month agreed that the project had exerted a "notably adverse" impact on the environment of the Three Gorges reservoir, with a total circumference of 600 km, and along the Yangtze since last year, when the project began operation.
They said the huge weight of the water behind the Three Gorges Dam had started to erode the Yangtze's banks in many places, which, together with frequent fluctuations in water levels, had triggered a series of landslides.
"If no preventive measures are taken, the project could lead to catastrophe," they said.
Tan Qiwei, vice mayor of Chongqing, a sprawling metropolis next to the reservoir, said the shore of the reservoir had collapsed in 91 places and a total of 36 km had caved in.
Frequent geological disasters have threatened the lives of residents around the reservoir area, said Huang Xuebin, head of the Headquarters for Prevention and Control of Geological Disasters in the Three Gorges Reservoir.
At the forum he described landslides around the reservoir that had produced waves as high as 50 meters, which crashed into the adjacent shoreline, causing even more damage.
Clear water discharged from the Three Gorges Dam has also threatened the safety of the protective embankments downstream, according to Hubei Vice Governor Li Chunming.
Both Tan and Li said the quality of water in the Yangtze tributaries had deteriorated and outbreaks of algae or aquatic weeds had become more common.
"We can by no means relax our vigilance against ecological and environmental security problems or profit from a fleeting economic boom at the cost of sacrificing the environment," said Wang Xiaofeng, director of the office of the Three Gorges Project Committee of the State Council.
The open discussion of the negative effects of the Three Gorges Dam comes a month after the Wall Street Journal reported on the rising concerns of landslides, pollution and flooding in the area.
It quoted environmental scientist Weng Lida, secretary general of the Yangtze River Forum, as saying, "We thought of all the possible issues. But the problems are all more serious than we expected."
Commenting on the newspaper report, Wang said he thought most of the statements were said out of a concern for the Three Gorges Project, but some of the phrasing did reflect ulterior motives.
But he also admitted, "The problems mentioned in the Wall Street Journal should merit adequate attention from all of us."
Wang said the Chinese government had also paid great attention to consequences in the wake of the construction of the Three Gorges Dam.
Wang revealed that during an executive meeting of the State Council held earlier this year regarding the key problems arising from the Three Gorges Project, Chinese Premier Wen Jiabao was said to have cited ecological and environmental woes as primary problems to be addressed.
While pledging to cooperate more with relevant central and local government departments in promulgating regulations for tightening management over the reservoir, Wang said comprehensive management measures would be taken to ensure the water in the Three Gorges Reservoir was clean.
"We have to make concerted efforts to attain the dual goals of constructing a first-rate hydraulic project and making it into a top-level showcase for the environment," said Wang, "we will work harder to turn the Three Gorges Reservoir Area into an environmentally-friendly society."
The government has invested heavily in programs designed to restore and conserve the ecology of the Three Gorges area in recent years, including 12 billion yuan (about 1.5 billion U.S. dollars) spent on trying to harness geological disasters such as landslides.
It has also closed or relocated 1,500 manufacturing ventures, constructed more than 70 sewage disposal and waste treatment plants and resettled about 70,000 people from disaster-prone areas.
The participants in the forum in Wuhan also called for the establishment of a long-term mechanism on the prevention and control of geological disasters in the Three Gorges Reservoir Area, and a ban on fish farming in cages in the reservoir area to prevent an excess of nutrients degrading the water quality.
Imagine such candid admissions being made in the state media, the Xinhua news agency. Evidently the ruling elites have begun to realize something is seriously wrong. The Three Gorges Project was launched in 1993. Many of those destined to be shunted to Chongqing over the next 10-15 years have already been moved once.
Some were fishermen and farmers who left their age-old villages, before they were flooded, to set up home higher up the valley.
"In the best situation, many people have put all their life savings into new homes that they built," says Grainne Ryder, of the Canadian monitoring group Probe International.
"To be told now that they have to start over, you know is not only tragic but may indeed lead to more protests, followed by more state brutality."
She said previous attempts to relocate peasants to the cities had sparked off major revolts.
"They're now homeless labourers, many people were not provided the land they were promised, or compensation they were promised, so they're destitute," she says.
Official recognition of the problems could seem to indicate an attempt by the current leadership to distance itself from the dam's toxic legacy, it is felt.