The town, called Owenstown, would be based on co-operative principles.
It is thought, if the £500m initiative was to go ahead, more than 3,000 homes would be constructed as well as create up to 10,000 jobs.
In addition to the homes, the development would include office and commercial space, cafés, restaurants and shops, land and buildings for industry, as well as two new primary schools and one new secondary school.
The developers behind the project, the Hometown Foundation, have said the town would be owned and managed on a co-operative basis by the residents. Any surplus funds generated would then be reinvested in the community. However, Councillors have been advised to reject the plans because planning officials claim the site is unsuitable. The site in question involves 400 acres of a 2,000-acre site near Rigside, Douglas Valley in the area.
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Plans for the new town were first unveiled five years ago, with an application for planning permission in principle submitted in November 2012.
In a report prepared by the local authority's planning committee, it is claimed: "The concept of a new town, based on the co-operative principles described by the applicants, could be acceptable in the right location and under the right circumstances.
"Overall, however, it is concluded the site the subject of the application is inappropriate."
According to the BBC, a spokesman for the developers said this conclusion was "in spite of the economic and social benefits it would bring, no substantial objections from a wide range of statutory bodies and a groundswell of support".
The application is due to be heard today (1 April).
(JP/IT)
