in Shaoshan, in the central province of Hunan, on December 26, 1893.
Xiangtan city, which includes Shaoshan, is spending 15.5 billion yuan ($2.54 billion) on 16 schemes linked to the occasion, the Changsha Evening News said, including renovating a tourist centre and preserving Mao's former residence.
The works also include broader infrastructure projects, such as high-speed rail stations and highways, to impress the expected influx of visitors.
Local authorities in Xiangtan have hailed the commemoration by saying its "importance overrides any other at the moment", the Global Times, which is close to the ruling party, reported earlier this week.
But Chinese Internet users reacted to the 15.5 billion yuan sum -- which far exceeds a 1.95 billion figure reported earlier this week -- with indignation on the country's popular micro-blogging platforms.
"How much money does it cost to deal with pollution?" wrote one poster on Sina Weibo. "How much does it cost to provide medical insurance? How much to offer students from poor districts free lunch?
"I can't believe they're spending this much money on a dead man, a controversial dead man."
Another said: "Xiangtan's economy is not doing well and a lot of people have been laid off by state-owned enterprises. And they spent so lavishly! I am so 'proud' of them. Who are those Xiangtan officials really serving?"
The comments underscore the thorny issue of such lavish outlays at a time when many ordinary Chinese are lashing out at officials over corruption, and the government itself has launched an austerity campaign, banning banquets and other over-indulgences.
In addition to its spending on infrastructure and other projects, Xiangtan plans to mark the anniversary with a host of events including a "large-scale" cultural performance, a national cycling competition and a photography exhibition, local authorities have said previously.
City residents traditionally celebrate the date by eating "longevity noodles" and singing "The East is Red" the Cultural Revolution-era anthem glorifying Mao.
A Xiangtan government spokesperson declined to comment on the newspaper report when asked by AFP on Thursday.
The city's spending is part of a broader commemoration of the Mao anniversary in China.
The late leader's legacy is principally associated in the West with horrors such as China's Great Leap Forward, when tens of millions died through famine, and the Cultural Revolution.
But within China, his supporters focus on Mao's earlier revolutionary years, his role in the 1949 founding of the People's Republic and his nationalistic stance.
The country's current leader Xi Jinping has sought to capitalise on the sentiment by invoking Maoist doctrine in some of his rhetoric.
Jeffrey Wasserstrom, professor of history at the University of California Irvine, said the 120th anniversary will see an effort to put Mao "into a context as the person who began China's resurgence to world-power status, as opposed to what the Western associations with Mao often now are".
"That's an ongoing kind of disconnect in the way some Chinese think about Mao," he said.
Not only politicians, but also some Chinese businesses are looking to profit from all the Mao-themed celebrations.
One company that makes maotai, a popular Chinese spirit, is seizing the opportunity to promote a special Mao Zedong 120th Anniversary version with a limited circulation of 12,000 bottles.