The Mandoli Jail, which will have the capacity to house 3,750 inmates, has missed several deadlines.
"Undertrial prisoners lodged in Tihar Jail with good conduct will be shifted to the newly-constructed Mandoli jail.
"Similarly, convicts with good conduct will be sent to the jail," Jain said.
The Home Minister said the prisoners involved in heinous crimes will, however, remain at Tihar.
A separate cell is being constructed at the Mandoli jail for "high security prisoners".