China's annual investment on railway construction could fall to about 500 billion yuan ($78.7 billion) a year, retreating from ambitious heights mapped out in a plan for the sector that has struggled with high debts, an official Chinese newspaper said on Tuesday.

The China Securities Journal cited an unnamed source who said yearly spending on rail construction for the remainder of the current five-year plan (2011-15) could shrink from the 800 billion yuan a year proposed in a long-term plan.

In 2010, investment in rail sector fixed assets reached 842.6 billion yuan, and this year the Ministry of Railways plans to complete basic infrastructure investment worth $600 billion, the newspaper said.

The unnamed source told the paper that China's State Council -- its central government cabinet -- ordered adjustment of the medium-to-long term plan for rail network expansion, but no conclusive document has emerged yet.

The current financing environment has some bearing on this adjustment, which is mainly focused on some smaller lines, said the paper. Major lines will continue to maintain the previously planned pace of construction, it said, without specifying a source.

The China Securities Journal is published by the state-run Xinhua news agency.

The government initially moved to slow railway project approvals to address public anger after a crash on a new high-speed rail line in July that killed 40 people.

Work on 10,000 kilometers of railways was suspended, leaving contractors with large piles of accounts receivable.

But the Railway Ministry also faces a high debt burden. It said in August its total liabilities at the end of June were 2.1 trillion yuan, up by nearly half from the end of 2009.

CSR Corp Ltd <1766.HK> <601766.SS>, China's largest train maker, said last week that it had received a $944 million payment from the ministry, sending its stock higher.

The Ministry of Railways is expected to receive at least 200 billion yuan ($30 billion) in fresh funds soon, the official Xinhua news agency reported last week.

(Reporting by Chris Buckley; Editing by Ken Wills)