After years of division in the UMC - the largest mainline Protestant denomination in the US - the proposals set out the path towards the formation of a new "traditionalist Methodist" denomination for those who hold to a conservative view on marriage and sexuality.
The UMC denomination would move forward with formally allowing same-sex marriage and same-sex LGBT clergy. That would mean changing the wording in the UMC's Book of Discipline, which currently states that homosexuality is "incompatible with Christian teaching".
A nine-page document published by UMC leaders on Friday says that a separation is "the best means to resolve our differences, allowing each part of the Church to remain true to its theological understanding, while recognizing the dignity, equality, integrity, and respect of every person".
"The United Methodist Church and its members — after careful reflection, discussion and prayer — have fundamental differences regarding their understanding and interpretation of Scripture, theology and practice," the document reads.
Conservative congregations that choose to join the new traditionalist denomination are to be helped by a $25m fund, while departing clergy will be allowed to retain their UMC pensions.
The proposals have been formulated by a 16-strong committee comprising bishops and Church leaders on both sides of the debate.
In a vote in February last year, 53 per cent of Church leaders and lay members expressed a desire to retain the UMC's traditional stance on marriage and sexuality.
The new plans will come before the 2020 General Conference in May for approval and are expected to pass.
They have been welcomed by liberal and conservative pastors.
Pro-LGBT pastor Thomas Berlin told The New York Times that they were a "welcome relief" to the conflict in the Church.
"I am very encouraged that the United Methodist Church found a way to offer a resolution to a long conflict," he said.
Keith Boyette, president of the Wesleyan Covenant Association, a fellowship of over 1,000 conservative congregations, predicts that up to 40 per cent of the denomination in the US could leave the UMC.
Speaking to The Wall Street Journal, he also welcomed the proposals.
"For traditionalists, we can now focus on the next steps," he said. "That would not be achievable if there were not this kind of plan in place."