The plans for Ludmilla Bay have alarmed the Larrakia community, who fear they will lose a popular fishing and recreational area.
The proposed crocodile-shaped island would capitalise on the state’s icon which attracts tourists from around the world to Kakadu National Park.
But Larrakia community members oppose any such development.
"It’s gone from being more-or-less attached to the land, a land-based marina, to a man-made island. I mean c’mon, it’s a beautiful little natural bay," said Larrakia community member and spokesperson Donna Jackson.
The Northern Territory Environment Centre says the proposed development would damage mangrove, turtle and dolphin habitats and restrict locals from carrying out their traditional hunting methods.
"It’s a really important area for a lot of people so the fact that they haven’t done any consultation with these people is pretty sad really," said Samantha Nowland from the Northern Territory Environment Centre
The developers, Halikos, said in a statement they were beginning geotechnical studies on the scheme's feasibility.