The Abu Ghraib prison, west of Baghdad, was dreaded under Saddam Hussein's regime and gained further notoriety when it was revealed that US forces had abused Iraqi detainees there in 2003.
"We will transfer operations from Abu Ghraib to the new Camp Cropper once construction is completed there," a US detainee operations spokesman said in a statement on Thursday.
"No precise dates have been set, but the plan is to accomplish this within the next two to three months."
The US military spokesman, Barry Johnson, said the Abu Ghraib prison would be handed over to the Iraqi authorities, "but we do not anticipate the Iraqi government to use it as a prison or a detention facility".
"However, it is up to them how to use it," Johnson said.
The Iraqi government operates its own prison within the grounds of Abu Ghraib.
The US military said 4537 detainees are held in Abu Ghraib.