Iran and Malaysia on Sunday launched a project to build tens of thousands of homes in new towns outside Tehran, the first such foreign investment in the Islamic republic to help it cope with booming population growth in cities.

Malaysian private company Amona announced at a ceremony that it will invest at least US$500 million to build 20,000 houses in the two new towns of Parand and Hashtgerd, using about 160 hectares of space in each town.

"Iran's share in the whole project stands at 15 percent and the rest goes to the Malaysian partner," Iranian Minister of Housing and Urban Development Mohammad Saidi-Kia told reporters as the first foundations for the new homes were laid.

"Whereas Iran has only provided the real estate, Malaysia brings the total investment and engineering works," he added.

Construction of housing complexes in Parand is already well advanced, with several buildings apparently complete and awaiting their first tenants. However this project is the first to involve a foreign company.

Iran, which is grappling with the social and economic effects of a booming youth population, has 22 new towns already built or under construction cross the country.

Parand, located 45 kilometers southwest of Tehran, will house 500,000 people as the largest of the new towns. Hashtgerd lies just outside the capital's northwestern outskirts.

The aim of constructing new towns with mass residential buildings is to attract average- and low-income families currently living on the outskirts of bigger cities or smaller towns and villages, the minister said.

"The most important problem in our housing sector is population growth and the imbalance of immigration (to bigger cities)," said Ali-Akbar Aghai, head of parliament's housing commission.

In 2020, Iran expects to have a population of 90 million - 85 percent of whom will be urban residents. The population of Tehran province has already risen to 12 million as people move from smaller towns to the big city.