Opposition Leader Tony Abbott is backing away from a draft coalition discussion paper proposing incentives and beneficial tax rates to encourage people to move to northern Australia.
However, the plan - described as "wacky" by Labor - has received support from several premiers and Nationals members as well as maverick Queensland MP Bob Katter.
The document, Developing Northern Australia - a 2030 vision, says there's "tremendous potential" in northern Queensland, the NT and Western Australia and incentives should be provided to develop urban zones around Darwin, Cairns-Townsville and Karratha.
Large numbers of public servants should be shifted from metropolitan areas to northern Australia, it says.
Mr Abbott said there was "absolutely no way" people would pay different taxes depending on where they lived under a coalition government.
"It's not even a finalised discussion paper, it's certainly not policy," Mr Abbott said.
But he said there was "nothing wrong" with a system of "careful, fiscally responsible incentives".
Assistant Treasurer David Bradbury said the policy would "divide Australia in two".
"It's a policy that will say to people in parts of the country like western Sydney ... 'We're going to take jobs - tens of thousands of jobs - from your region and ship them up into far northern Australia,'" Mr Bradbury said.
Trade Minister Craig Emerson said the paper had been leaked to the media by coalition members to torpedo the policy.
"They have produced a document that is very, very expensive, ill-thought out, leaked by disgruntled people and already condemned by the Liberal Party," he told reporters in Canberra.
Mining billionaire Gina Rinehart last year proposed a special economic zone for the region with tax incentives and red-tape exemptions.
Mr Abbott said he had not discussed the Liberal plan with Ms Rinehart.
"Obviously, Gina has made a terrific contribution to northern development with some of the mines that she has pioneered.
"But no, I haven't had any personal discussion."
Nationals Senate leader Barnaby Joyce said some of the paper's ideas should be pursued.
"We've got to make sure that if we want people to these disparate areas, to develop the resources, to develop the ports, to give our nation the next stage of development, then we've got to create the incentive for them to go into these areas," he said.
Queensland Premier Campbell Newman said places such as Townsville had benefited in the 1960s from the movement of the army and public servants.
NSW Premier Barry O'Farrell said zone allowances should be considered for western parts of his state.
Australian Greens leader Christine Milne described the plan as "madness".
"It's Tony Abbott doing what Gina Rinehart wants ... different tax laws, different tax zones, maximising the profits," she told ABC radio.