Christmas and Cocos Keeling Islands should join an existing state instead of running their own budget as a self-governing body, a Federal Government committee into their future has concluded.

The Indian Ocean territories have long complained that bureaucrats in Canberra are making decisions about the way resources are spent in their communities, without input from locals.

This week, a committee investigating governance for the territories, recommended they join Western Australia or the Northern Territory in order to fix those problems.

"That seems like the best way forward," committee chair and Liberal MP for Cowan Luke Simpkins said.

"Rather than making another Chief Minister for a small community out there, the better way forward is to have a system which works with a state, local and federal representation."

The committee's report acknowledged the close links between Western Australia and the islands, including connecting flights from Perth and business links.

Legal complications

However, inclusion into Western Australia would require a referendum, in a state where the majority of referendums in the past have failed.

"I know that there are familial links into WA created by history and flights, but I think the Northern Territory — if they would consider it — [have] got things to offer as well, and it might even be easier to fit the Indian Ocean territories into the NT," Mr Simpkins said.

Christmas Island shire president Gordon Thompson hit out at the report, saying the recommendation to sweep the island into Western Australia or the Northern Territory took their demands for self-governance backwards, not forwards.

"There is no consideration whatsoever of the majority view of the people," he said.

"The whole problem with this report is that it's not interested in testing, or not interested in the opinions of Christmas Islanders really."

Christmas Island is home to a diverse mix of wildlife, including the world's largest crab species. ( Supplied: Kirsty Faulkner )

'Galapagos or Maldives' on doorstep

The $35 million spent on Christmas and Cocos Islands is a source of frustration for Mr Thompson, who said if departments were based on the island, there would be a greater responsiveness to community needs.

The Christmas Island Tourism Association's Lisa Preston said that if the islands were to join Western Australia, there would be a lot they could bring to the state's tourism offerings.

"Western Australia would have its own Galapagos and its own Maldives if that attitude was taken by the State Government," Ms Preston said.

Christmas Island is home to a diverse mix of wildlife species on its beaches and forests, including the world's largest crab.

While the committee has recommended amalgamation into Western Australia or the Northern Territory, Mr Simpkins said no decision had been made and local communities would be consulted.

The West Australian Government declined invitations from the committee to share their view on bringing the islands into their state.