KS regions of Salwa and Khawr Al Udayd.
It was first reported by Saudi newspaper Sabq, before being picked up by other news outlets.
Forbes called it a surprising twist in the ongoing diplomatic and economic standoff between the two countries.
The dubious report, which said the project was still awaiting official approval, says the waterway will be 60km long, 200M wide and between 15 to 20M deep, enabling it to receive ‘container and passenger ships.’
The newspaper also said that a 1km stretch of land north of the canal, bordering Qatar, would become a ‘military zone,’ permanently ending land trade between the two Gulf countries.
The initial cost of the project was put at SR2.8bn ($750m), adding that it could be completed within 12 months.
However, users on social media sites like Twitter did not take to the plan kindly and ridiculed it.
Hundreds of Twitter users supported the Qatari emir and started an Arabic hashtag #SalwaMaritimeChannel, which was the No.1 trending topic in Saudi Arabia and Qatar.
Forbes wrote that the commercial rationale behind the move was to develop tourism resorts along the new waterway, with plans for at least five hotels. Ports were also to be constructed and a free trade zone set up.
The publication however doubted how much demand there would be for all this. For one, the area is thinly populated and far away from any major industrial centres. With a closed Qatar border, one main target market for any commercial or tourism activity would be shut off.
It would also make little sense for shipping traffic from further north or south to divert into the narrow channel and away from the Gulf itself.