In the first sign that the federal government is favouring a retreat from the coast rather than rebuilding, the Army Corps of Engineers is to present to Congress a radical plan which includes rebuilding the wetlands that have been disappearing at an ever-accelerating rate in recent years.

The Corps, the engineers responsible for protecting the coastline, has been working on the plan since Katrina struck in August 2005. President George Bush promised after the floods to rebuild New Orleans and other Gulf communities.

But federal agencies and environmentalists have concluded that climate change has increased the threat of further devastation and continued rebuilding makes no sense. To be included in the overall plan is $40bn (£20bn) to be spent on the Mississippi coast. Part of this would be for a voluntary buyout of 17,000 houses in Mississippi, particularly in Bay St Louis, east of New Orleans. The corps is likely to extend the plan to New Orleans and Louisiana.

Susan Rees, project director, said: "The whole concept of trying to remove people and properties from the coast is very, very challenging. The desire to live by the water is strong."

The plan has had a mixed reception. While some have welcomed the chance to leave the area rather than face further storms, others have rebuilt their homes and are reluctant to leave. Local politicians said the plan would destroy communities because they could not be sustained if many people opted to take the money. Fishing and tourist villages on the coast were already fragile after Katrina, with many families opting against return.

Among those opposed to the buyouts is Gene Taylor, a Democratic congressman: "It ain't going to happen. There's no money for it, there's no will for it and there's no public support for it." He is rebuilding his home in Bay St Louis, which could lose about 60% of its land to buyouts.

William Walker, director of Mississippi's marine resources department, said some communities had opted to move out en masse. "These areas probably should not have been developed in the first place. It's not practical to ask the federal government to keep rebuilding and repairing after repetitive floods," he said.

Oliver Houck, a professor at Tulane University who has studied coastal controls, called buyouts a reasonable option. "Any programme that attempts to subsidise their continuing to stay in place is simply subsidising another wipeout," he said.

Part of the $40bn would also be spent on rebuilding the fast-disappearing wetlands, which provide a natural barrier against flooding. The loss of wetlands is partly man-made: silt from the Mississippi that built them up has been prevented from reaching the Gulf by flood-protection levees constructed by the army corps.

Orrin Pilkey, director of a shoreline programme at Duke University, said the coast was eroding, sea levels rising and hurricanes may be becoming more forceful. "A retreat is our only solution," he said.