Seoul will notify neighboring countries of the details this week before making a formal announcement, government officials said.
The timing coincides with U.S. Vice President Joe Biden's upcoming visit to South Korea during his weeklong trip to northeast Asia. Biden was in Japan Tuesday before visiting Seoul and then Beijing.
China declared its extended zone in a unilateral move last month. The move has been questioned by the governments of the United States, Japan and South Korea.
Seoul is concerned China's extended air defense zone includes the islands of Marado and Hongdo as well as the Ieodo Ocean Research Station, all under South Korean control.
Yonhap reported South Korea's air defense zone was set up in 1951 by the U.S. Air Force but omits some remote spots, including Ieodo.
The research station, about 100 miles south of Jeju Island, is built on top of the submerged Ieodo rock formation and within the overlapping exclusive economic zones of South Korea and China.
Ieodo lies less than 100 miles south of Marado, a treeless island of less than 1 square mile and home to about 90 people. Marado is about 5 miles off the south coast of Jeju, a favorite South Korean holiday destination.
South Korea warned China in March 2012 it will protect Ieodo even though the landmass is about 15 feet below sea level.
South Korea's Foreign Ministry called in Chinese Ambassador Zhang Xinsen to warn Beijing against making claims Ieodo Island is within China's exclusive economic zone, the Korea Herald reported at the time.
South Korean officials said Seoul's proposed extended air defense zone will cover all of South Korea's internationally recognized flight information region, which covers areas including Ieodo, far south of the current identification zone.
Air defense zones exist by unilateral declaration and aren't regulated and defined by any international body or treaty. They are, however, respected in general by governments, air forces and civil aviation companies.
A country will set up an air defense zone to cover airspace over land or water in which it claims the identification and location of civil aircraft is required in the interest of national security.
Countries with such zones include Canada, India, Pakistan, Norway, the United Kingdom, Taiwan and the United States.
Tensions rose in the region after China announced it would call on aircraft entering its extended zone to submit flight plans and identify themselves upon entry.
China's extended air defense zone also covers the disputed Diaoyu Islands that are under Japanese control. The Senkaku Islands, as they are called by Japan, also are claimed by Taiwan, which expressed regret at Beijing's action.
Japan said it doesn't recognize Beijing's authority though Washington said it would comply.
Chinese Foreign Ministry spokesman Hong Lei said Monday China has legitimate security concerns related to a defense zone in the East China Sea and its extended air defense zone isn't aimed at one country.
"China has communicated with related countries over the [extended zone] ... and urges them to understand China's legitimate security concerns and right to self defense," the spokesman was quoted by China's official Xinhua News Agency as saying.
Hong said Japan was responsible for stoking regional tensions regarding its claims to the Senkaku Islands.