Satellite imagery shows that China built a village of about 100 houses in the Arunachal Pradesh area, at the heart of its longstanding border dispute with India.
The village on the banks of the Tsari Chu River, Xinhua says that most of the houses were built last October.
The development of new roads for military use in the region provides "a good opportunity to build homes for local Tibetans with poverty alleviation funds," the source told SCMP.
Arunachal Pradesh is considered by New Delhi to be an Indian state, but Beijing claims about 90,000 square kilometers of the area is Southern Tibet.
China and India have had a Reality Control Line border dispute for decades.
The Ministry of Foreign Affairs of India said it had known "information on Chinese construction along the border areas with India".
Chinese Foreign Ministry spokesman Hoa Xuan Oanh said on January 21 that all construction activities are located within Chinese territory.
According to a 2017 document, Beijing plans to build 624 villages on the disputed border as part of a plan to eradicate poverty and ensure political stability in the Tibetan autonomous region.