It already plans to build the tallest tower and artificial islands shaped like palm trees and like a map of the world. Now the ostentatious emirate of Dubai is to host the world's first underwater hotel.

Called Hydropolis, the hotel will resemble a giant submarine anchored in the Gulf, accessible only by a tunnel via a waterside reception area.

The German architect and investor behind the project, Joachim Hauser, said it would "address mind, body and soul in an unparalleled manner". The main challenge would be to get people to understand its philosophy, he said.

Work on the $A760 million, 220-suite facility would begin this year, finishing in 2006. Mr Hauser did not elaborate on how he would build the underwater hotel or persuade holidaymakers to stay there.

With rapid development Dubai has been forced to use every piece of space, building out into the ocean, up into the sky and deep into the desert. The emirate would like to rely on tourist dollars rather than oil, and aims to become the biggest and best holiday destination.

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