Morocco has been floating the idea of limited autonomy for Western Sahara for some months and the council's plan shows it has buried the prospect of independence for the former Spanish colony.
Polisario has already dismissed autonomy and the council's draft proposal could worsen Morocco's strained relations with its neighbour Algeria.
"The draft plan offers a solution to the territory's problem on the basis of an autonomy," Khali Henna Ould Errachid, chairman of the Royal Consultative Council for Sahara Affairs, told a news conference on Wednesday.
"It offers self-determination via autonomy but it does not propose a self-determination that leads to separation and independence."
"The plan would be a final and complete solution to Western Sahara because it satisfies all the historic demands of the Sahrawis," Ould Errachid said.
The 142-member royal-appointed council approved the draft late on Tuesday. Once King Mohammed endorses the plan, Rabat will launch a diplomatic campaign to drum up support for autonomy at home and abroad.
Morocco, claiming centuries-old rights over a territory rich in phosphates, fisheries and possibly offshore oil, annexed Western Sahara when Spain withdrew in 1975.
That triggered a low-level guerrilla war with Polisario. A U.N. ceasefire agreement in 1991 promised Sahrawis the chance to vote in a referendum on independence. The vote never took place.
AUTONOMY PLAN
"Independence is not possible because Sahrawis are scattered over the borders and inside four states: Algeria, Mali, Mauritania and Morocco," said Ould Errachid.
He did not give details of the autonomy plan, saying it "is still a draft. It would become a proposal only when the king accepts it".
Sources familiar with the plan told Reuters the draft included alternative variations for the wording of several articles, with the final decision left to the King. Ould Errachid made it clear that one of the proposal's aims is to put pressures on Polisario's leadership in the hope of weakening it and cutting its support among Sahrawis.
"Polisario fears our plan. They see it as a tsunami because it offers an alternative to the Sahrawis," he said.
He called on Algeria, where Polisario has its headquarters and thousands of Sahrawi refugees live, to give Sahrawis there the freedom to choose.
"All Sahrawis, except between 800 and 1,000 people making up the core of Polisario's leadership and support, are telling us they back autonomy," said Ould Errachid.