MAGOODHOO, Maldives — As long as anyone can remember, life on the island of Magoodhoo in the Maldives has revolved around fishing in the crystal clear waters that wash the coral reefs, and kicking back under palm trees on deck chairs made from coir rope.

“This is a very fun, happy life,” said Islam Ahmed, 24, a tall, lean man chewing on areca nuts and betel leaves at one of two cafes on the less than one-square-mile island. It is one of nearly 1,200 islands that make up the Republic of Maldives, a nation southwest of India in the Indian Ocean.

But Mr. Ahmed and others here are bracing for a life change they fear could be catastrophic, after the Maldivian president’s announcement in January that leaders of Saudi Arabia were planning a $10 billion investment in the group of islands where Mr. Ahmed lives, known as Faafu Atoll.

Most alarming to the residents were reports that the government was breaking with a longstanding policy of leasing the islands that are home to some of the world’s premier resorts and selling the atoll outright to the Saudis. The inhabitants fear they might be moved off the islands.

“It is worrying that we may be taken from here and put in tiny apartment boxes,” said Sobira Aboobukaru, 58, near the farm where she grows chilies and cucumbers. “It would be hard beyond our imaginations.”

The Maldivian president, Abdulla Yameen, has denied that the atoll will be sold, and the Saudi embassy said it had no intention “of investing in a megaproject or buying an island or atoll in the Maldives.” But the fact that Mr. Yameen pushed to change the Constitution in 2015 to allow the sale of property to foreign entities has continued to fuel rumors of a potential sale.

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All of this has left Mr. Ahmed and the approximately 4,000 residents of the 19 coral islands in Faafu Atoll guessing about what the future holds. It has also underscored how new allies and investors have gained a foothold in this strategic archipelago. The country has pivoted from its traditional partners — India and the European Union — amid growing international pressure over accusations of human rights abuses by Mr. Yameen.

Saudi Arabia has for decades spread its conservative strand of Islam in the Maldives by sending religious leaders, building mosques and giving scholarships to students to attend its universities. The Saudis are building a new airport terminal, and have pledged tens of millions of dollars in loans and grants for infrastructure and housing on an artificial island near the capital, Malé.

Similarly, China, which sees the Maldives as a strategic outpost in its quest for regional dominance, has underwritten hundreds of millions of dollars in loans for a new airport runway and a mile-long bridge connecting the airport to the capital.

The $10 billion Saudi investment seemed to be a crowning achievement for Mr. Yameen, but now the Saudis seem put off by the negative publicity, and the deal may be unraveling.

King Salman of Saudi Arabia was expected to visit the Maldives last week, but canceled at the last minute, citing a flu epidemic on the islands. It was widely assumed here that he wanted to avoid inflaming the dispute or facing protests.

The Saudi interest in Faafu Atoll began with a 2014 visit by King Salman, then the crown prince, and his son Mohammed bin Salman, now the deputy crown prince.

A year later, Prince Mohammed returned to host a week of parties. He and his entourage took over two resorts, said a person familiar with the plans. That person said guests had flown in night after night on private jets to attend the parties, which featured famous entertainers including the rapper Pitbull and the South Korean singer Psy.

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Mohamed Malé eh Jamal, formerly a member of Mr. Yameen’s economic and youth council, said that he had attended the signing of a memorandum of understanding between representatives of the Saudi royal family and the Maldives two years ago. He said he had been told that it involved selling the atoll, although he was not privy to the details.

The precise plans remain a secret, but Mr. Yameen has said the Saudis envision mixed-use developments similar to the French Riviera. A million people would be drawn to the atoll, on which airports, resorts and high-end housing would be built, he said.

For centuries, life in Magoodhoo has revolved around fishing. The second-least populated of the Maldives’ 20 administrative atolls, Faafu is steeped in history. The second-oldest mosque on the Maldives, built more than 800 years ago, lies on island of Nilandhoo, which is the atoll capital. The Norwegian explorer Thor Heyerdahl said in his 1986 book, “The Maldive Mystery,” that he had found ruins of ancient Hindu and Buddhist temples on the same island.

About half of the men in Magoodhoo, including Mr. Ahmed, spend much of their lives at sea. Six yellowfin tuna fishing boats operate from here, each with a crew of at least 16 men. Their wives and children stay behind on the island, an oval nub of silver sand rising out of the ocean with a clump of coconut and breadfruit trees in the center.

In small, single-story concrete buildings in the center of town stand a school, a police station, a health center and an island council office. Residents live in small houses built with coral limestone along the several roads that crisscross the center of town. The streets are not paved but covered in sand and kept passable by women who sweep them several times a day. By the beachside, many women spend their days cutting palm leaves and weaving thatch, a valued commodity for resorts.

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With its tiny population spread over hundreds of such islands, the government has struggled to meet its people’s demands for fresh water, sanitation and education. It has a history of pushing people off the smaller islands onto the larger ones, where it can provide centralized services, further fueling the fears of the people of Magoodhoo.

Not everyone dreads the potential Saudi embrace. Many are hopeful that Saudi investment will bring jobs and development, even as they worry they could be forced to move off the island. More than a third of the Maldives population of nearly 350,000 is crowded onto the capital island, Malé, on just 2.2 square miles of land that is a two-and-a-half-hour speedboat ride northeast of Faafu Atoll.

Even Mr. Ahmed said he was willing to move off the island, under the right circumstances. “Anyone who has a bit of wealth is going to Malé to educate their kids,” he said. “If I get enough money, I, too, will go to give my kid an education.”

But with the prospective Saudi development, he worries that he and his family could be forced to move whether they want to or not. Many residents fear they may be moved to apartments the government is building on an artificial island near Malé, financed in part by an $80 million loan from the Saudi Fund for Development.

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