Central Australia could be the location for an "Australian Alcatraz" that houses high-level terrorists, if an Alice Springs business group proposal goes ahead, ABC News reported.

The Alice Springs Major Business Group (ASMBG) is currently lobbying for a privately run detention centre to be built in the middle of the Red Centre, with the facility purposely designed to detain criminals who have broken federal terrorism laws.

It hopes the project will woo private investment and create a new industry in the NT.

The ambitious proposal has made its way to the desks of the Northern Territory Chief Minister as well as the federal Home Affairs Minister Peter Dutton.

In a letter sent to the Chief Minister, the business group chaired by Alice Springs airport manager David Batic, said the correctional facility would serve a critical need for a "centralised USA-style federal penitentiary".

"It's not a government project, it's not on government land, it doesn't involve the Territory Government at all — it's a private sector on private sector land that involves the Australian Government," Chief Minister Michael Gunner  noted.