The project has a US$31mn price tag and entails expanding the capital's sewerage network and building two new wastewater treatment plants.
Nearly 1,000 of Brazil's 5,570 cities are currently suffering the effects of drought.
Lima, Iquitos and other Peruvian cities will see more state investment in water infrastructure.
The federal government will put up approximately US$90mn to build houses and sanitation networks in three cities that were hit by massive floods back in 2011.
The plant will be located in the sea at state capital Manzanillo and is expected to have a generation capacity of 4.8MW.
This is the largest amount yet approved for a departmental water plan.
The government stated that only 78% of the population has access to water networks, while lack of access to sanitary services is even greater.