Like many island nations, Cocos Islands -- a group of 27 small atolls that lie 2,936 kilometres (1,824 miles) west of Australia -- are increasingly threatened by coastal erosion and rising sea levels driven by climate change.
The federal government's proposal, made public in January, suggests that residents, water resources, power stations, roads and shops be relocated in the next 10 to 50 years.
This "long-term managed retreat" is the most "viable option to protect lives in a socially, economically and environmentally respectful way," the report said.
Government projections show that by 2030, sea levels could rise by 18 centimetres (seven inches) along the Cocos Islands compared to 1992 levels.
Many of the 600 residents there are descendants of Malay workers brought to the islands to work in the coconut plantations in the 1830s.
The British colonised the islands in 1857 before sovereignty of the territory was transferred to Australia in 1955.
- 'Not an overnight decision' -
Shire of Cocos Island chief executive Frank Mills said he was "disappointed" that the government had refused to explore long-term climate mitigation strategies that would allow people to stay on the island for good.
"It is really disappointing and we are going to do what we can to challenge the Commonwealth and their views of the world," he told AFP.
That could include legal action, he added.
Many people have been on Cocos Island for three to five generations, and the decision to leave would not be easy for them, Mills said.
"That is not an overnight decision."
"Everything is involved in that decision: where they would go? Generations of people are buried on Home Island -- would they be relocated to a suitable place on the mainland?" Mills said.
A government spokesperson said the proposal had not yet been finalised and was open for community consultation.
The Cocos Islands are just one of many low-lying island nations forced to contemplate their future, non-profit Climate Council fellow Wesley Morgan said.
Last year, Australia offered a landmark treaty with Pacific nation Tuvalu to offer residents the right to live in Australia if rising seas swamp their homeland.
Meanwhile, Fiji has relocated communities to higher grounds since 2014.
"Australia should be doing everything it can so people who have lived on these islands for many generations can stay there and maintain their culture in their homelands", Morgan said.
This included cutting emissions and transitioning away from coal and gas, he added.
The UN's Intergovernmental Panel on Climate Change has determined with a high degree of confidence that the global mean sea level has risen at rates unseen in at least 3,000 years, driven by human-induced climate change.
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