[Top photo: Generic picture of the streets at night in Taipei.]

TAIPEI - Taiwan's interior ministry has proposed setting up a legal prostitution zone allowing the island's already huge underground trade to flourish, in response to popular demand from sex workers, officials said on Friday.

Pimps, prostitutes and their clients who do business in the zone will not face any punishment, said ministry department head Huang Bi-hsia.

"Prostitution remains a common phenomenon around the world, and there's no way to stamp it out," a ministry research report says. "Handling the question of adult sex in the future can shift toward a special zone plan."

Taiwan outlawed prostitution 11 years ago, but older sections of the capital Taipei still teem with underground sex workers in tiny bars and night clubs on the upper floors of high-rise buildings.

The Collective of Sex Workers and Supporters, a Taipei-based advocacy group, estimates that 600,000 people are involved in sex-related work. Among them are Chinese and Southeast Asians.

"Sex work is work. We believe prostitutes, clients and third parties should not be fined," the group said in a statement. "As for the interior ministry's 'special zone' option, there should be consideration given to setting up multiple zones."

The cabinet had no comment on the ministry's proposal.

Taiwan is just the newest place to consider legalising the world's oldest profession.

New Zealand allowed brothels to operate freely in 2003, when parliament narrowly voted to overturn 100-year-old sex laws. Legislators in the U.S. state of Rhode Island face opposition as they examine a bill this month to decriminalize prostitution.

(Reporting by Ralph Jennings; Editing by Sanjeev Miglani)