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Arun-3 HEP is a Run of the River (RoR) type hydropower project presently under construction on River Arun in Sankhuwasabha district of Nepal. The Project comprises of a 80m high concrete gravity dam, Power Intake on left bank, 11.77 Km long & 9.5m dia Horse Shoe shaped Head Race Tunnel, 149m deep Surge Shaft, Underground Power house & Tail Race Tunnel/Outfall structure. The project is currently under advanced stage of construction. For undertaking construction works for concrete gravity dam, 11m dia & 429m long horse shoe shaped diversion tunnel has been excavated through weak/fragile rock mass to divert 1300 Cumecs of diversion design flood. To enable the design diversion flood through Diversion tunnel, a 27m high u/s colcrete cofferdam and 5m high d/s earthen cofferdam have also been constructed. The Himalayas being young and fragile posed a geologically challenging environment for construction of the diversion tunnel. The u/s colcrete cofferdam has been designed as semi-permanent structure with Overtopping allowed. The Diversion tunnel is presently commissioned and is under operation. This paper presents the planning & design aspects for the river diversion arrangement as well as the modification adopted for the tackling the cavity/chimney formation inside during construction of the diversion tunnel.