The decision was based on a three-year study conducted by the government.
"The results of the studies have concluded that the ideal location for a new capital city would be part of North Penajam Paser District and part of Kutai Kartanegara District in East Kalimantan," President Jokowi told the media during a press conference held at the State Palace, here Monday.
The government owns a plot of land measuring 180 thousand hectares in East Kalimantan.
"The burden of Java Island is getting heavier with the population reaching 150 million or 54 percent of Indonesia's total population with 58 percent of Indonesia's economic GDP on Java Island," he said.
Jakarta, as an administration and business center, is also overburdened, he added.
The central government studied several locations in Jakarta and concluded that the burden of Java would only increase if the new capital was located on the island, Indonesia's fifth-largest after Papua, Kalimantan, Sumatra, and Sulawesi.
Hosting both government and business centers, Java now faces overpopulation, severe congestion, air pollution, and water pollution.
"The economic gap between Java Island and other islands has also been widening, despite the special autonomous region policy that has been implemented since 2001," Jokowi remarked.
The total cost for the physical development of the new capital city is estimated at Rp466 trillion, according to the National Development Planning Ministry.
Of this cost, Rp74.44 trillion would be derived from the State Budget, Rp265.2 trillion from joint ventures with private businesses, and Rp127.3 trillion from private investment.
The new capital city faces minimal risk from natural disasters and is located at the heart of Indonesia. The site is also close to big cities such as Balikpapan and Samarinda.