President Daniel Ortega led the swift approval process, giving a Hong Kong company the right to build the shipping canal, The New York Times reported Thursday.
Experts, though, said the canal may never be built because of environmental concerns and uncertainty it would generate enough income to make it worthwhile, the newspaper said.
"It's not going to happen, that was my first reaction," said Noel Maurer, an associate professor at the Harvard Business School. "A pipe dream might be too strong, but I would just consider it a really bad investment."
Maurer said he didn't think there would be enough ships to pass through a second South American canal (the other is the Panama Canal) to support it financially.
Building the canal would mean cutting through 180 miles of thick tropical terrain, either alongside the San Juan River or through several large drainage areas, the Times said.
The drainage areas provide water for nearby agriculture operations, leading some people to be concerned about how the construction would affect their lands, the Times reported.
"Nicaragua isn't for sale. Nicaragua belongs to all Nicaraguans and isn't the private property of Ortega and his family," said the Movement for Nicaragua, a coalition of civil-society groups that oppose the plan.