The new town - Siri Bapora - is designed to house the residents of Hambantota, which has a 90% Muslim majority - and was one of the places hardest hit in the disaster, with more than 4,500 people killed.
The government plans to rehouse over 5,000 Sinhalese Buddhists from villages outside of the Hambantota area, whose homes were also destroyed, at the new site.
But residents are concerned that mixing communities of different religions and cultures will only cause problems.
"Muslim people are up at about five in the morning for the prayers, they are announced on the mic - so that will be a disturbance for these people," Mr Khalid, one of the Hambantota Muslims affected by the tsunami, told BBC World Service's Reporting Religion programme.
"The [Buddhists] on the other side will be fast asleep. When they get the call, they are doing the drumming and announcing, that will disturb the people during prayers - so it is a mutual thing.
"So there is a possibility of some flare-up."
The 500-acre Siri Bapora project is the first of its kind in the country, and could become the blueprint for the rehousing of the one million people left homeless across the island.
10,000 Muslims are currently living in refugee camps in Hambantota. Siri Bapora is to be the first of 16 new towns to be built in Sri Lanka.
Around 10% of Hambantoba's population is Sinhalese, and the two communities have co-existed in the town for over 1,000 years, with many intermarriages within the community.
But it is the Sinhalese coming from other areas, and possessing different cultural beliefs, that some are afraid of.
Hambantota's residents currently live in refugee camps
"Their environment is different, the Sinhalese movement is different," Mr Khalid added.
"Near the town area, their people are educated, and they just take it as a bump.
"Here it won't do. They're local people, and they won't like their daughters marrying a Muslim, or Muslims marrying a Sinhalese girl."
The plan for Hambantota has been facing opposition for some time now.
As well as fears over religious tensions, some residents are also unhappy that the new town will be much further inland.
Their livelihood previous to the tsunami was fishing, but Siri Bapora will be sited three kilometres from the coast.
Some believe there are dark motives behind these decisions.
The Sinhalese being moved in from outside Hambantota are from districts where the government - a coalition of three parties - has the majority support.
But in Hambantota, the opposition United National Party are in power.
Teem Samidon, the head of a local mosque partially destroyed in tsunami, believes by moving Muslims out of town, the government is trying to win the Hambantota parliamentary seat.
"They want to break this support - they don't want the support to continue forever," he said.
"But it's a very strong seat for the UNP. So they want to scatter all the Muslims into certain areas.
"It looks to me as if some disruption is going to happen."
However, at the government office in Hambantota, Mr Pira Siri, the divisional secretariat, said he did not expect any cultural clashes.
"No such problem will arise," he added.
"Muslims and Sinhalese are already living together. So people are discouraging the resettling of people, because some politicians think they will lose votes when their supporters have to move out of their political area.
Some residents are unhappy they will be unable to fish
"But apart from this, I don't see any other problems with the issue."
RK Wilson, a refugee who lost his wife and three daughters in the tsunami, said he believed the future could be peaceful.
"Even though I am Sinhalese, I have always been friends with Muslims," he said.
"I want to stay in the same community. I don't want to move to another place.
"The Sinhalese and Muslims have been living together peacefully.
"We want to carry on living peacefully in the future too."