Rudd said an Asia-Pacific Community -- a potential economic powerhouse including China, India, the United States and Japan -- could be established by 2020.
"The key thing is to enhance security and regional cooperation, which at present is fragmented," Rudd said in a radio interview after outlining the idea in an address to the Asia Society Australasia on Wednesday night.
"Remember the region is currently host to a whole range of unresolved territorial conflicts -- the Taiwan Straits, the Korean peninsula, Kashmir, involving a whole range of nuclear weapons states.
"We can either stand back and allow things to drift, or we can say 'actually there should be a better way of handling this'.
That's what we're putting forward as an ambitious proposal for the future."
Rudd, a fluent Mandarin speaker and ardent Sinophile, has made engagement with Asia a foreign policy priority since his election last November.
Rudd's stance contrasts with that of his conservative predecessor John Howard