The Home Office said the accommodation barge will be used "to reduce the unsustainable pressure on the UK's asylum system and cut the cost to the taxpayer caused by the significant increase in Channel crossings."
The barge that will be docked in Portland Port is to accommodate single adult males whilst their asylum claims are processed, with the first residents due in the "coming months."
"The use of expensive hotels to house those making unnecessary and dangerous journeys must stop. We will not elevate the interests of illegal migrants over the British people we are elected to serve," said Immigration Minister Robert Jenrick.
"We have to use alternative accommodation options, as our European neighbors are doing -- including the use of barges and ferries to save the British taxpayer money and to prevent the UK becoming a magnet for asylum shoppers in Europe," he added.
Prime Minister Rishi Sunak has vowed to stop crossings of the Channel, which hit more than 45,000 last year.
He unveiled legislation last month to stop migrants illegally making the treacherous journey on small boats.
Almost 88,000 people have made the crossing of one of the world's busiest waterways since 2018, leading the country's asylum system to become overloaded.
More than 160,000 people were awaiting a decision as of the end of December 2022, with most having waited more than six months, according to official figures.
Meanwhile, Britain is spending almost a third of its overseas aid budget on supporting refugees and asylum seekers inside the UK, according to official figures published Wednesday.
The new figures provoked dismay from charities and the country's independent aid watchdog.
Nearly £3.7 billion ($4.6 billion) was spent internally on supporting refugees in 2022, according to Foreign Office figures. OECD rules permit so-called in-donor refugee costs (IDRC) to be counted as Official Development Assistance (ODA).
The UK spent £12.8 billion on overseas aid in 2022, with IDRC increasing by £1.1 billion to £3.7 billion.
In contrast, £1.1 billion is allocated in aid for the whole of Africa.
"Today's figures provide a further stark reminder that this is a government robbing Peter to pay Paul," said Sophie Powell, chief of UK advocacy at the Christian Aid charity.
"We must reject the false choice between responding at home and fulfilling the UK's responsibilities to the world's most in need," she added.
