Officials said the digging phase of the channel -- 250 meters long, 12 meters wide and nine meters deep -- had almost ended.
The soldiers are laying steel nets, stuffed with rocks, to the base and sides of the channel to prevent mud-flows.
Officials expected the new channel and two existing channels to release 400 cubic meters of water a second, relieving pressure on the reservoir which contains 240 million cubic meters of water, 30 million cubic meters more than its previous high.
If it bursts, the reservoir could inundate Golmud with water up to four meters deep. The city's power and water plants are also at risk,according to the municipal government.
The Qinghai-Tibet Railway, the world's highest railway, could also be hit by flood waters as it is only 40 km from the reservoir.
On July 8, a new round of rainstorms started to batter provinces and regions in central and southwest China, triggering floods and landslides, bursting dikes, and destroying houses and farmland.
In Qinghai, 28 people have been killed since July in the province's worst floods on record. The lives of about 60,000 residents were affected.
Wang Xin, deputy head of the provincial weather forecast bureau, said the amount of rain and the scale of devastation were "unprecedented."
She said drainage systems in cities other than provincial capital Xining were too "fragile" to deal with the kind of heavy rains Qinghai experienced in the past few days.
Provincial authorities have mobilized 2,000 armed police to lay sand-bags, and steel or lead nets at the Golmud Dam and along the Golmud River downstream of the Wenquan Reservoir.
Yu Congle, provincial water resources chief, said he was not optimistic as the water levels of many rivers in Qinghai were up to record highs, while the flood control systems were not functioning well.
About 128 of the province's 150 reservoirs faced the danger of bursting, he said. "We face an arduous task."
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