The government is to pump the money into a 2,200sq km development area of Johor Baru which will contain a hi-tech park, logistics and industrial precincts, an educational park, regional hospitals, a marina, waterside villas, theme parks and gated residential communities.
The government will also create free access zones in certain areas in Johor where visitors from Singapore can live and work.
There will be no immigration and customs check for entry into these zones which will be guarded by surveillance systems and barriers.
Abdullah Ahmad Badawi, the prime minister, keen to boost a slowing economy and his own political support, said on Saturday that the government would set up a central planning body to oversee 20 years worth of projects to transform Johor Baru and its surrounds.
"We mean business," he told a crowd on city's foreshore, overlooking the island state of Singapore, whose rapid economic success over 30 years has mocked Johor Baru's failed ambitions.
"Our vision is to make south Johor the new international address for business, investment, leisure and culture."
Abdullah said investment of $13 billion would be needed in the first five years from 2006-2010 to build roads and other infrastructure required to set the stage for an influx of private investment, which is expected to come largely from Singapore.
The government estimates $105 billion of investment will be required over 20 years to meet the projected growth target of eight per cent per annum for the region.