In response, Pyongyang threatened to cancel the 1953 cease-fire that ended the Korean War.
The draft resolution would subject North Korea "to some of the toughest sanctions imposed by the United Nations," U.S. Ambassador Susan Rice told reporters. She called the scope of the sanctions "exceptional."
The proposed resolution, worked out by Rice and China's U.N. Ambassador Li Baodong over the last three weeks, reflects the growing anger of the U.N.'s most powerful body at North Korea's defiance of three previous sanctions resolutions that demanded a halt to all nuclear and missile tests.
This one pledges additional measures if Pyongyang keeps ignoring the council with new tests, Rice said. North Korea's latest test was in February.
With the support of China, the North's closest ally, the proposed resolution is not expected to face serious opposition, though council members will send it to their capitals for review.
"We hope for unanimous adoption later this week," Rice said.
The draft resolution targets for the first time the illicit activities of North Korean diplomats, the country's illicit banking relationships and its illegal transfers of large quantities of cash, Rice said. It also adds new travel restrictions.
Hours before the U.N. meeting, and as word emerged of the U.S.-China proposal, Pyongyang threatened to cancel the 1953 cease-fire that ended the Korean War.
Any fresh international sanctions are certain to infuriate North Korea, which has claimed the right to build nuclear weapons to deter alleged U.S. aggression. Citing the U.S.-led push for sanctions, the Korean People's Army Supreme Command on Tuesday warned of "surgical strikes" meant to unify the divided Korean Peninsula and of an indigenous, "precision nuclear striking tool."
Hours after North Korea carried out its third atomic blast on Feb. 12, all 15 council members approved a press statement condemning the nuclear test and pledging further action. The swift, unanimous response set the stage for a fourth round of sanctions.
The sanctions have been aimed at trying to derail the country's rogue nuclear weapons and ballistic missile programs. In addition to barring North Korea from testing or using nuclear or ballistic missile technology, they also ban it from importing or exporting material for these programs.
North Korea's neighbors and the West condemn the North's efforts to develop long-range nuclear missiles capable of hitting the United States as a serious threat to Northeast Asia's delicate security and a drain on the precious resources that could go to North Korea's largely destitute people.
North Korea says its nuclear program is a response to U.S. hostility that dates back to the Korean War, which ended with an armistice, not a peace treaty, leaving the Korean Peninsula still technically in a state of war.
North Korea says Washington and others are going beyond mere economic sanctions and expanding into blunt aggression and military acts.
U.S. Secretary of State John Kerry said President Barack Obama and the American people would like to see North Korean leader Kim Jung Un promote peace and engage in talks.
"Rather than threaten to abrogate and threaten to move in some new direction, the world would be better served ... if he would engage in a legitimate dialogue, legitimate negotiations, in order to resolve not just American concerns, but the concerns of the Japanese and the South Koreans and the Russians and the Chinese, everybody in the region," Kerry said in Doha, Qatar. "That's our hope."
The North's latest nuclear test was seen as a crucial step toward its goal of building a bomb small enough to be fitted on a missile capable of striking the United States. Many outside analysts still believe the North hasn't achieved such a miniaturization technology.
Rice said the proposed new sanctions build on, strengthen and significantly expand the scope of the strong U.N. sanctions already in place.
In an attempt to target North Korea's ruling elite, the draft resolution for the first time lists specific luxury items that all countries are banned from exporting to the reclusive nation, including yachts, luxury automobiles, racing cars and expensive jewelry, according to a Security Council diplomat familiar with the text.
The council banned the export of luxury goods after the first nuclear test in 2006 but it never spelled out the items. This resolution allows states to define "luxury goods" but says they must include the listed items.
The resolution also includes new provisions aimed at making it harder for North Korea to move around the funds it needs to carry out its illicit programs.
All countries would now be required to freeze or stop any financial transaction or services that could contribute to North Korea's nuclear or missile programs, or that violates the three previous sanctions resolutions which also prohibit virtually all conventional arms sales. It also calls for states to limit their relations with North Korean banks tied to illicit programs, according to the diplomat, who spoke on condition of anonymity because the draft has not been circulated publicly.
The document includes what the diplomat called unprecedented new travel sanctions that would require countries to expel agents working for sanctioned North Korean companies. North Korean nationals would be returned home and other nationals would face a travel ban to make it harder for them to move around.
The draft also requires - rather than requests - states to inspect suspect cargo on their territory and prevent any vessel that refuses an inspection from entering their ports.
A new aviation measure calls on states to deny aircraft permission to take off, land or fly over their territory if illicit cargo is suspected to be aboard.
The draft would add three individuals described as agents for arms traffickers who are active internationally and two companies to the U.N. sanctions list. It would also add items to a list of nuclear and ballistic missile-related items and technologies banned for export to North Korea, including specific lubricants and valves critical for uranium enrichment.
Klug reported from Seoul. Associated Press writers Matthew Pennington in Washington, Hyung-jin Kim in Seoul and Louise C. Watt in Beijing contributed to this report.