Yingluck, who has been rattled by weeks of street protests, said the body would be set up in parallel with the February 2 snap polls and will recommend political reforms and anti-corruption measures.
"It is now time to develop a mechanism to push forward and mobilise national reform," she said in an address to the nation.
"My government has listened to suggestions of several sides from the several forums and agrees that reforms are needed in the social, economic and political dimensions."
Protest leaders immediately rejected Yingluck's plan, saying she was "not sincere" about reforms.
A spokesman for the protesters said the proposed council would be under her influence. "It is certain that she will interfere with the proposed council," he said.
Rejecting the opposition's claims, Yingluck insisted that her government would not get involved in the establishment of the council. The PM's Office and the cabinet would only acknowledge the council but not approve it, she said.
She did not indicate the term of the council, though she had earlier stated it would operate for two years.
Anti-government protest leader Suthep Thaugsuban, a former deputy premier, has already dismissed the idea of a council and has been demanding Yingluck's immediate resignation.
Yingluck dissolved parliament and called an early poll on December 9 after main opposition Democrat Party lawmakers resigned en masse from the lower house. The Democrats later boycotted the polls and joined anti-government protests.
She is determined to carry on as the interim prime minister till the February 2 polls.
"I'm like a fighter in the ring, waiting for the referee to make a call that is in line with the rule of law, but the referee has yet to decide. I'll let myself be beaten to death and let the audience decide," she told a cabinet meeting.
"I won't ask anyone to help me and the government, but I'll ask anyone to save our country," Yingluck was quoted as saying by Bangkok Post.