Authorities will build channels to bring water in from outside, promote water-saving technologies and methods, ration the use of water, and plant more trees and wetland plants, according to the plan.
Dunhuang, with a population of 130,000, has been protected from the encroaching dunes of the Kumtag desert by a belt of forests, wetland and lakes sustained by two major rivers and abundant underground water. But in recent years, excessive draining of water in the region has dropped the levels of the lakes, shrunk the wetlands and dried up the rivers.
Government statistics show that over the past six decades the forests of Dunhuang have shrunk by 40 percent, meadows by 62 percent, and the wetlands by 68 percent.
"A large part of salt lakes and fresh water lakes in the oasis had mostly gone," said Gao Hua, director of the Forestry Bureau of Dunhuang.
Gao previously told Xinhua that the Kumtag desert was pushing back the oasis' forest belt three or four meters each year.
Experts say desertification also threatens the preservation of 1,000-year-old Buddhist frescoes in the Mogao Grotteos, which were listed in 1987 by the United Nations' Educational, Scientific, and Cultural Organization as China's first world heritage site.
Dunhuang is just one example of the effect water shortages have on the vulnerable ecology in the country's northwest, where about 1.7 million square km of territory in Xinjiang, Inner Mongolia, Gansu, Qinghai and Ningxia, or 17.7 percent of China's land space, are covered by desert.
During a visit to Gansu in 2009, Premier Wen Jiabao, who started his career as a geological engineer in the province, called for efforts to "save" Dunhuang from disappearing into the desert.
"We should never allow Dunhuang to become a second Loulan," Wen said, referring to an ancient Kingdom located in today's northwestern Xinjiang Uygur Autonomous Region. Loulan is believed to have been swallowed by the desert about 1,400 years ago.
"It is a good thing that the state is about to give us such major support," said Ren Shenglu, head of the village of Heshui in Dunhuang. "We have been calling for the support for years."
Local officials said they have taken measures to prepare for the implementation of the plan, including promoting water-saving irrigation, advising farmers to grow agricultural products that need less water, and restricting drilling wells, farming and migration.