"We will promote Kalpitiya as a destination," says Sri Lanka Tourism chief Renton de Alwis.
"For example, Bali is not promoted as Indonesia. Bali has its own air links and immigration."
Prasad Galhena, who is in charge of the KITRP project, says the area will have super luxury hotels, where premium rates would be charged. The project is expected to generate four times the 79 US dollars a day spend of a tourist.
A currently dis-used airfield in Palavi in the same area would be developed.
Kalpitiya is now mainly an agricultural and fishing area. Officials say no re-settlements are planned and the existing community will be integrated into the planned development.
The government is planning to develop a mini city with new roads power links and a hospital. Condominiums, a race course and an amusement park is also planned.Tourism secretary George Michael says the area with 14 islands contains 4,000 acres for development.
Galhena said requests for proposals from investors would be called by November after cabinet approval is received.
Officials are hoping to get approval for an investor guide that has been already prepared by mid-October.
Sri Lanka's tourism has been hit by an internal conflict. Authorities are hoping to bring in close to 600,000 tourists this year.
The Kalpitiya premium zone when fully developed is expected to attract one million tourists, and official say is the largest single tourism project promoted so far.