But villagers from the Manaseer area, 350 km north of the capital Khartoum, said new houses built for them by the government were too far from the river and would not have the water needed to sustain their agriculture.
"This is our area and we don't want to leave it," said al-Rashid Taha, a member of the committee representing those affected in Manaseer, who had come to Khartoum to plead their case.
He said the villagers supported the dam project and had signed a deal with the government 18 months ago to build them new homes, but that those being offered were not where they wanted. He said 70 percent of the 18,000 families in the area were affected.
The dam, financed about 40 percent by the government with the rest from Arab funds and Chinese loans, is designed to have a capacity of 1,250 megawatts and to ease the regular power cuts in Khartoum and allow electricity to reach new areas.
It has long been a source of controversy.
Local people had complained that compensation for moving was insufficient in a country - Africa's biggest - where those living on the peripheries have often felt neglected by central government and sometimes taken up arms.
In the past, there were clashes between villagers and the authorities over Merowe but most of the people have now moved and have accepted the government compensation.
Taha accused authorities of closing the dam's gates and said 25 of almost 200 villages in Manaseer had been destroyed by floodwaters as a result. "There are thousands of families living in tents with nowhere to go," he said.
But a spokesman for the Dams Implementation Unit said it was untrue that the gates had been shut.
"It's flood season with heavy rains, all the gates of all the dams in Sudan are open," he said. "These villages flood every year in the rain."
He did not say what authorities would do if the villagers still refused to move later in the year when the dam is due to start generating power.
No one was immediately available from the local government to comment.
Access to the entire area is tightly monitored by the DIU which reports directly to the presidency.
Sudan's economy is officially forecast to grow 8 percent in 2008, the same rate as in 2007. It has benefited from the 2005 peace deal that ended decades of war between north and south although conflict persists in the western Darfur region.