A 20,000 year-old coral reef, the only one in the Gulf of California, is at the centre of a dispute over a huge tourist development which could draw thousands to a remote part of Mexico.

At the moment, most only hear about Cabo Pulmo, where pristine beaches meet a turquoise sea, by word of mouth.

US tourist Lenny McCarl said he discovered the village thanks to his girlfriend's family, during a visit in June.

"I like the little niche up here. You drive two hours outside of Cabo San Lucas and you're only 130 kilometers away, but there's no houses, there's just a villa here, a villa there," McCarl said, standing on the beach.

The site is less than two hours north of Cabo San Lucas and its luxury hotels and Hollywood celebrity-owned mansions, which have transformed the south of the peninsula in the past few decades.

The village also lies next to the site for one of Mexico's largest tourist development projects.

A wire fence marks out some 4,000 hectares destined to include several thousand hotel rooms and condominiums rising in five stages over 25 years.

The $500 million plan includes a tourist town "where school children will parade on the plaza", a jet port for private planes and golf courses.

Locals and environmental groups say the scale of the project is bound to impact on the land as well as the sea - with runoff from golf courses, desalinisation facilities and large yachts in a new marina.

"The government is blocking its ears and allowing a project like this, right on the limit of the marine reserve. As if there'll be no damage beyond an imaginary line," said Enrique Castro, whose family has lived in the area for five generations.

Commercial fishing is now banned and locals have spent 15 years changing their habits to try to preserve the reef under a government plan hailed as an example of conservation by ecologists.

Activities still revolve around the marine-rich Gulf of California, once nicknamed the "world's aquarium" by French explorer Jacques Cousteau.

Spanish company Hansa Urbana has meanwhile gathered permits to start building the Cabo Cortes development, including requirements for protecting the environment.

Such measures, including a ban on lights on the beach to avoid disturbing endangered turtles, water recycling and solar power, make the project 40 per cent more expensive, representative Sergio Tabansky said in Mexico City.

More than 60 per cent of the land would be left for conservation, Mr Tabansky added, admitting the eco-friendly label was also a good selling point.