The rule is being called the "Welcome City Ordinance".
Chicago has been a so-called "sanctuary city" for immigrants since the mid-1980's. On Tuesday, Mayor Rahm Emanuel appeared to roll out the red carpet, telling newcomers that Chicago is the best place for them to be if they are in the United States illegally.
"When we call ourselves a sanctuary city, we are embracing you as a full member of the city of Chicago," said Emanuel.
The mayor wants to enhance the ordinance that disallows city agencies from asking or considering immigration status in applications for city services.
The new ordinance would close a loophole and forbid police from detaining undocumented immigrants unless they are named in criminal warrants or have been convicted of a serious crime.
"If you have no criminal record, being part of a community is not a problem for you. We want to welcome you to the city of Chicago," said Emanuel.
The mayor says the 'Welcome City Ordinance' would make Chicago "the most immigrant-friendly city in the country". The anti-illegal immigration Minuteman Project called the mayor's plan a "moronic" violation of federal law.
"What he's doing by operating a sanctuary city in Chicago, he's creating a magnet for criminal aliens to come over here and reside with impunity," said Rick Biesada of the Minuteman Project. "He's just pandering to the illegal alien community."
Biesada said the mayor's plans violate federal law and said Emanuel was being "negligent". Biesada said that the sanctuary city policy makes Chicago a magnet for criminals.
North Side congressman Luis Gutierrez, who last year criticized former White House chief of staff Emanuel for holding up immigration reform, had only praise for the mayor on Tuesday.
"If the mayor of the city of Chicago is going to work towards making Chicago a model city in respect to the policy and its treatment of immigrants, then I'm going to stand with that mayor," said Gutierrez.
Emanuel says the 'Welcome City Ordinance' should improve the immigrant community's relationship with police and help reduce crime.
"You see a crime - report it; you're a victim - report it," said Emanuel. "The police department is not there as an adjunct of the immigration services."
Emanuel's push for the new ordinance began one day after the Chicago Sun-Times reported that Latinos, who make up about one-third of Chicago's population, were under-represented in the mayor's cabinet.
Both the mayor and Congressman Gutierrez said the proposal had nothing to do with politics.