South Korea normally grants asylum to North Koreans who are able to make it to Thailand, but processing delays have caused a refugee backlog, resulting in strained ties between the two countries.
The proposal came after Hong Jung-wook, a legislator from South Korea's ruling party, released a presidential order made in March which said Seoul should "promptly consider establishing refugee camps, at least in Thailand".
Lee Myung-bak, the South Korean president, has also suggested Seoul should talk to other countries such as Mongolia or Russia about setting up centres for North Korean refugees on their soil.
Most refugees who manage to escape North Korea do so over the land border with China.
It is a risky crossing and China's general policy to forcibly repatriate any refugees it catches on its soil.
Human rights groups say many who are returned are jailed in labour camps or are tortured.
Aid groups say an estimated 200,000 North Korean refugees live illegally in many Asian countries – many hoping to eventually reach South Korea.
Some 10,000 have made it South Korea where they are almost always granted citizenship.
But limited reception facilities mean officials in the South can only process and resettle a small number of refugees at any one time.