The Arts and Cultural Heritage Trust, behind the initial idea and in charge of running the museum, had unveiled plans for the museum last year.
It has now been allotted a wing in Amritsar's Town Hall by the Punjab government.
"We are very grateful the Punjab government has recognised the importance of the Partition in the history of India, and the world," said Kishwar Desai, the chair of the trust.
The Partition Museum will be a space of commemoration and documentation of the largest migration in history.
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"They lived in camps and rudimentary shelters till they found alternate accommodation. It was a huge sacrifice that has largely been forgotten, and the Partition Museum will raise that veil of silence," the trust said.
The project has been described as a people's museum, built through contributions, donations, artefacts and documents being sourced through private and public collections and archives.
Its home at the Town Hall itself is an old colonial building dating back to the late 19thcentury with its grand facade and belfry being witness to the turmoil of the Partition of India.
It plans to seek collaborations from all the countries involved in this part of the Indian sub-continent's history - India, Pakistan, Bangladesh and Britain.
The launch of the new museum is planned next year.