The Emirates news agency WAM said on Sunday the development, to be named the Khalifa bin Zayid City after UAE President Shaikh Khalifa bin Zayid Al Nuhayyan, would house 30,000 to 40,000 Palestinians at a cost of at least $100 million.
It was not clear where the town would be built.
"This is a gift from his excellency to the brotherly Palestinian people in order to help ease their ordeal and offer them proper housing," WAM said.
Shaikh Khalifa gave orders to the department of agriculture and municipal affairs to carry out the project in cooperation with the United Nations Relief and Works Agency for Palestinian Refugees (UNRWA).
Israel has said that next month it will begin the removal of 21 settlements in Gaza, built during Israel's occupation of the impoverished territory since 1967.
A new neighbourhood opened in the northern Gaza Strip earlier this year where the UAE had spent $55 million to house Palestinians whose homes had been destroyed by Israeli military actions during the Palestinian uprising raging since 2000.
Israel has agreed with the Palestinian Authority to demolish all the homes in its Gaza enclaves.
The UAE, an affluent trade and tourism hub in the Gulf, has no diplomatic relations with Israel and links formal ties to the establishment of a Palestinian state alongside Israel.