The idea to turn the peninsula nation into an island and transform its only land border into a military zone and nuclear waste site was revealed in state-linked Saudi newspapers.
The project has not been given official approval and faces many obstacles.
However it signals a new low in the 10-month-old feud between Qatar and a quartet of nations that includes Saudi Arabia, the United Arab Emirates, Egypt and Bahrain.
The four accuse Qatar of sponsoring terrorism because of its support for Islamist opposition groups in the region and its warm relations with Iran.
Qatar denies the allegations and claims the moves attempt to undermine its sovereignty. Qatar’s ruling emir, Sheik Tamim bin Hamad Al Thani, met with US Defense Secretary Jim Mattis in Washington on Monday and has also met with Donald Trump.
Saudi Arabia’s Sabq and al-Riyadh newspapers carried reports which detailed how Saudi Arabia would transform part of its side of the border with Qatar into a military base.
Under the proposal, another area would become a dump site for waste from nuclear reactors the kingdom wants to build.
The UAE, meanwhile, would also build a nuclear waste site at the closest point near its border with Qatar.
An earlier report by Sabq ran with a headline saying the canal project would “turn Qatar into an island” and would take just 12 months to complete.
The so-called Salwa Marine Canal project would be funded by Saudi and Emirati investors and dug by Egyptian companies with experience in the Suez Canal.
Sabq reports the canal would span the entirety of the border with Qatar, creating waterfront coastline for resorts, private beaches and Gulf cruise liners.
The canal, estimated to cost 2.8 billion riyals ($965 million), would stretch 200 meters wide and up to 20 meters deep.
Emirati Minister of State for Foreign Affairs, Anwar Gargash, became the first high-ranking official to comment on the proposal.
In a string of tweets, he said the project is “proof of Qatar’s failure to manage and solve its crisis” and that Doha’s silence on the canal project “is proof of their fear and confusion.” Qatari government spokespeople did not immediately respond to a request for comment.
The quartet has imposed a de facto blockade of Qatar since June.
Saudi Arabia sealed shut Qatar’s only land crossing, cutting off a key route for food and construction imports.
The four nations also expelled Qatari nationals and called on their citizens in Qatar to leave. They have barred Qatari flights from using their airspace and have supported alternative members of the ruling Al Thani family in exile.