The plan for the settlement is to create a city with low energy consumption, which would be as close to being as carbon neutral as possible.
This would be achieved by the use of expansive water-purification facilities and community waste-recycling projects.
It is hoped that the development - situated close to Shanghai on the third largest island in China and three quarters the size of Manhattan - will be completed by 2010.
Arup director Peter Head said: 'Arup is delighted to be working with [the client] on such an ambitious development that could well prove to be the template for sustainability in city planning - not only in China, but elsewhere in the world.
'Our appointment sends out a clear message that the Chinese Government is willing to find ways of overcoming the challenges of creating sustainable cities in the face of significant climate change, environmental pollution, water shortages and the need for the use of cleaner energy.'