President Ashraf Ghani and Indian Prime Minister Narendra Modi held summit-level talks in a video conference on Tuesday.
The agreement for the Shahtoot dam project was signed by the Afghan Foreign Minister Mohammad Haneef Atmar and his Indian counterpart Subrahmanyam Jaishankar.
At the conference, President Ghani said: “Your decision to provide us with 5,00,000 doses of the vaccine at this critical time... there could not be a greater gift.”
India's development assistance to Afghanistan is marked on our landscape, President Ghani said, adding that India is a true partner in Afghanistan's development.
In the meantime, Modi said that India is concerned about the increase of violence in Afghanistan and the targeted killings of "innocent people and journalists" and called an "immediate stop."
"Both India and Afghanistan want to see the region free of terrorism," Modi said, adding that India supports an Afghan-owned and Afghan-led peace process.
This was the first summit for New Delhi in 2021.
The Shahtoot dam will provide clean water to about 2 million residents in Kabul, and will be the second dam that India will have built in Afghanistan, the report said.
Afghan officials have said that the estimated cost of the dam will be about $236 million and will take about three years to complete.
The dam will also allow for irrigation systems to cover 4,000 hectares of land in the Charasiab and Khairabad districts.
Once complete, the dam will hold 146 million cubic meters of potable water for two million people in Kabul and irrigation water for over 400,000 acres of land, the report said quoting Afghan officials.
The agreement for the dam was announced by an Indian external affairs minister during his address to the Afghanistan 2020 Conference in November, the report said.