The US and China want to increase pressure on North Korean leader Kim Jong-un. Photo: Reuters
It comes in response to North Korea's recent nuclear test and missile launch.
The measures would for the first time require UN member states to inspect all cargo to or from North Korea.
The US ambassador to the UN, Samantha Power, said it would be the strongest set of sanctions imposed by the Security Council in more than 20 years.
A vote is expected at the weekend.
North Korea's launch of a long-range rocket in February and a nuclear test in January were widely condemned as a flagrant violation of UN resolutions.
China also condemned North Korea's actions but it has previously been reluctant to endorse sanctions that could threaten its neighbour's stability.
"For the first time in history, all cargo going in and out of the DPRK (North Korea) would be subjected to mandatory inspection," Ms Power said after presenting the draft resolution measure to the Security Council.
"These sanctions, if adopted, would send an unambiguous and unyielding message to the DPRK regime. The world will not accept your proliferation. There will be consequences for your actions."
Thursday's announcement followed weeks of negotiations between the US and China that culminated in talks in Washington this week between US Secretary of State John Kerry and Chinese Foreign Minister Wang Yi.
The North insists its missile programme is purely scientific in nature, but the US, South Korea and even its ally China say such rocket launches are aimed at developing inter-continental ballistic missiles.
The North's nuclear test in January, which it claimed was a test of hydrogen bomb technology, was its fourth since 2006.
What are the proposed sanctions?
--UN member states would inspect all cargo to or from North Korea
--North Korean ships suspected of carrying illegal goods would be barred from ports worldwide
--An arms embargo would be widened to include supplies of small arms
--The supply of aviation fuel including rocket fuel to North Korea would be banned
