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The valley was a habitat of butterflies before Japanese occupation of Hong Kong and thus named after the creatures. During Japanese occupation between 1941 and 1945, the forest in valley was damaged by the Japanese military for obtaining wood. The butterflies lost their habitat and hence became extinct. The reforestation after war did not help to return the butterflies.
There is a river run along the valley. Its upper course was blocked for collecting water in Kowloon Reservoirs and its lower course become a covered nullah under Butterfly Valley Road, which is the border of Lai Chi Kok and Cheung Sha Wan.
Although its proximity to Lai Chi Kok, large part of valley belongs to Kwai Tsing District.