The move has been widely criticised and viewed as a way of trying to further isolate Qatar for not towing the Saudi-UAE line on regional issues.
Saudi Arabia, the UAE, Bahrain and Egypt launched a blockade on Qatar last June, cutting diplomatic ties with Doha and halting air, sea and land links to the Gulf state.
The Saudi-led bloc accuses Qatar of supporting terrorism and being too closely allied to regional rival Iran, claims Doha strongly denies.
Qatar’s only land border was sealed by Saudi Arabia last year with Doha having to find alternative trading partners, such as Turkey.
The new canal project would permanently shutter Qatar’s only land access and turn the state into an island – an aim that Riyadh has not attempted to hide.
The so-called Salwa Canal project will see a 200 metre wide, 15 to 20 metre-deep water barrier between the two countries constructed.
Saudi Arabia plans to build new port cities along the canal and allow ships to pass along the planned waterway, which is planned to be constructed 1 km inside the kingdom’s border.
Saudi and UAE private companies will fund the $750 million project, which will take around one year to complete if the project goes ahead.
Riyadh has even planned to dump nuclear waste on the new border area, which will be transformed into a military zone with a new base planned for the area.
Saudi Arabia and the UAE’s attacks on Qatar are reportedly based on the emirate’s independent foreign policyand support for regional pro-democracy and Islamist groups, such as the Muslim Brotherhood.
Both countries have also made repeated threats of military action against Qatar, most recently over Doha’s plans to purchase the Russian S-400 air defence system.
Thousands of camels owned by Qataris were stranded in Saudi Arabia, with hundreds of the animals dying of thirst after being unable to reach Qatar due to Saudi restrictions.