Kenny MacAskill, Justice Secretary, has confirmed the prison proposal

The new publicly-run unit will replace ageing Victorian jails in both Aberdeen and Peterhead.

Peterhead houses about 300 prisoners, mostly sex offenders, while Aberdeen's Craiginches jail has about 250 inmates.

The new 700-capacity jail will be built in the Peterhead area, leading to the eventual closure of the current two prisons.

During a visit to Peterhead Prison earlier, Mr MacAskill also announced funding of �120m annually, allowing not only the construction of a new unit, but also further investment in the existing prisons.

This will be a prison run in the public sector, for the public good, and not for private profit Kenny MacAskill Justice Secretary

The minister believes that his announcement will mark an important turning point for prisons in the north east.

He said: "After years of indecision we are today announcing positive steps to replace Victorian facilities at Aberdeen and Peterhead with a brand new state-of-the-art prison in the area.

"This, like the replacement prison at Bishopbriggs, will be a prison run in the public sector, for the public good, and not for private profit."

Mr MacAskill is also expected to pay tribute to those who have campaigned in the past to keep Peterhead's current prison open.

Previous attempts to shut the facility have been overturned by the weight of political and local campaigning.

'World-class facility'

He said the plan was not to build additional prisons, but to replace those which were no longer fit for purpose.

An independent commission will be set up to consider how imprisonment is currently being used, with details of its membership due to be announced in coming weeks.

Prisons should not be filled up with minor offenders at the taxpayers expense, the minister added, but instead should be for the purpose of detaining dangerous criminals and punishing serious offences.

The new prison will house about 700 inmates

First Minister Alex Salmond, who is also MP for Banff and Buchan, said: "The local community has fought long and hard over many years to secure the future of this world-class facility."

But he also insisted that the new unit was not about improving conditions for prisoners.

"The investment is not for pool tables or Playstations," he added.

"This investment is about delivering a prison estate fit for purpose, and most importantly, about making our communities safer."

Anne Robertson, leader of Aberdeenshire Council and Convenor of the Northern Community Justice Authority, said she was delighted that the north east had been chosen as a location for a new prison.

"There has been a need to replace both Peterhead and Craiginches prisons for many years," she added. "The buildings are Victorian and sanitary facilities are unacceptable."

She said she hoped that the prison would be built to accommodate female prisoners and young offenders as well as prisoners currently in the outdated facilities.