The new board could be in place by July and would replace the Te Arawa Standing Committee, which has been stood down until the cultural engagement audit has been completed.
The board would be separate from the council and would help the council in "promoting cultural, economic, environmental and social issues of significance for Maori".
It would also allow for board members to sit on council committees, be part of Resource Management Act decisions and establish its own sub-committees.
The proposal would also require the council to give its reasons, in writing, if the council did not accept the board's advice on any matters raised.
Councillor Mike McVicker said he had major concerns with the proposal.
He did not agree with unelected members being able to make decisions for the council - saying it was undemocratic - and the Rotorua public should be consulted before it went any further.
"This would also allow for race-based electoral privilege being given to Maori.
"I understand iwi will have a huge impact on the future development of this city and accept there must be a better way to engage Maori, but this is not it.
"This is a major change in direction and a very significant move and I believe the community should be consulted," he said.
Committee chairwoman and people strategy portfolio leader, Councillor Merepeka Raukawa-Tait, said it was a project the council had been working on for some time and was far from finished.
It was time to update everybody that a draft proposal had been prepared and it was time to take it to Te Arawa for consultation at a hui a iwi in the next two weeks.
"Te Arawa may not even like it," she said. "It's a draft paper so I'm not prepared to comment on any outcomes.
"Te Arawa moves at its own pace and setting any timelines for them to respond is dangerous territory.
"But this is an opportunity for people to take a good look at what could be a very good thing for all of our community.
"We haven't done this too well in the past, so let's take our time and get it right," she said.
Rotorua Mayor Steve Chadwick said she was disappointed the report had been shared with the media before a wider group of Te Arawa had been consulted.
"It was shared with council's elected members as a courtesy.
"It was important that councillors were made aware of the process that Te Arawa is undertaking, and to have a look at what is being considered at the different hui."
Mrs Chadwick said the council had made a commitment in its Rotorua 2030 vision to develop a new partnership with Te Arawa.
It would carefully consider any and all recommendations made by the iwi regarding a new board structure and its powers. "We cannot pre-empt the discussions of Te Arawa.
"This remains their paper and their process at this time.
"There is a new and growing economy with iwi and there is expectation through legislation to be effectively partnering and working with iwi and our council is committed to doing this," she said.
Councillor Trevor Maxwell said he was disappointed Mr McVicker had publicly aired his frustrations with the proposal.
He said it could damage the consultation process with Te Arawa.
