Panama is embarking on an ambitious expansion of its storied canal to accommodate today's larger ships, recognizing that one of the engineering wonders of the world badly needs an update.

In a referendum marred by relatively low turnout, voters Sunday authorized the construction of a third set of locks so that vessels too wide for the current 108-foot-wide sections can take the shortcut between the seas.

"Today we have laid the groundwork to build a better country together," said President Martin Torrijos, who staked his political future on the plan.

His government said the $5.25 billion project, the largest in the canal's 92-year history, would create 40,000 jobs in a country where 40 percent of people live poverty and were unemployment sits at 9.5 percent. Currently the canal employs 8,000.

The Panama Canal Authority, the autonomous government agency that runs the waterway, says the project will double the capacity of the canal. Construction is set to begin in 2007 and will take up to eight years to complete. It will be paid for by increasing tolls, which will pay back $2.3 billion in loans to cover the initial costs.

"We are going to serve the world better and that means we are going to serve Panama better," said canal administrator Alberto Aleman Zubieta, his voice hoarse from celebrating.

Critics contend that costs could balloon for this debt-ridden country and the size of the program could lead to corruption.

"The expansion is necessary, but we all have to watch closely, make sure there isn't embezzlement and corruption," said Igor Meneses, a 34-year-old advertising executive who was waiting to vote in an older section of Panama City. "With that kind of money there's a lot to steal."

The United States built the waterway and controlled it until Dec. 31, 1999.

On the sweltering streets of Panama City, those wearing green T-shirts, bandanas, caps and vests supporting expansion were everywhere Sunday. Cars and trucks with "Yes" bumper stickers and flags jammed streets.

"Voting 'no' is like closing the door on the canal. It's the top source of income for Panama and improving it means more money for the government and less poverty," said boat salesman Leonardo Aspira, who sported a "Yes" shirt and baseball hat in Kuna Nega, a largely Indian town of dirt roads and banana trees on the outskirts of the capital.

About 78 percent of voters favored of the expansion, with 95 percent of polling stations counted by the country's electoral tribunal. Turnout among the more than 2.1 million voters was 43 percent.

Sunday's results were so lopsided that Electoral Tribunal President Eduardo Valdes called Torrijos to say that the referendum had been unofficially approved less than three hours after polls closed.

Yellow public school buses and vans with "yes" signs stuck to the side were seen whisking voters from poor, crowded neighborhoods to polling places to vote.

That did not constitute a violation of Panama's electoral laws, according to Albert Ramdin, assistant secretary-general for the Washington-based Organization of American States, who headed a mission of 50 OAS observers at Sunday's vote

The United States arranged for Panamanian independence from Colombia to build the canal, and ran it from 1914 to 1999. Torrijos' father, strongman Omar Torrijos, signed a treaty with President Jimmy Carter in 1977 to cede control of the waterway back to Panama, a decision that also was approved by Panamanians in a referendum.

Some aspects of the waterway remain little changed from when it opened nearly a century ago.

Electric locomotives coax larger ships through with just a few feet to spare on each side — an awesome sight along the freshwater channel lined with palm and banana trees.