Senator Dick Durbin says, if the funding is approved by Congress, it will cover the entire cost of upgrades and renovations to the facility.
The full activation of Thomson Correctional Center is expected to take two years.
Durbin says opening Thomson will help reduce prison overcrowding and create over 1,100 jobs in Illinois.
President Obama has proposed a $3.8 trillion budget for fiscal 2014 that aims to slash the deficit by $1.8 trillion over 10 years, raise taxes on the wealthy and trim popular benefit programs including Social Security and Medicare.
The Justice Department is proposing $166.3 million to alleviate prison overcrowding, using some of the money to begin activating facilities in West Virginia, Mississippi and Thomson.
The Thomson facility being purchased from the state of Illinois was envisioned as a place to house terrorist suspects from Guantanamo Bay. The idea of bringing Gitmo detainees to Thomson stirred political controversy and the Obama administration abandoned it.
The Bureau of Prisons has been a focus of growing concern at the department because of tight budgets.
Last month, Attorney General Eric Holder moved $150 million to the prison system from other Justice Department accounts to stave off daily furloughs of 3,570 federal prison staffers. The step was necessary because of the $1.6 billion in budget reductions at the department that took effect March 1. For the fiscal year beginning next Oct. 1, the department is proposing a $6.9 billion budget to run the nation's 122 federal prisons that hold 222,400 offenders.
The Associated Press contributed to this report.