Work has already started on the project with $105,000 in provincial funding, Conservation Minister Bill Blaikie said Monday.
The facility holds nuisance bears until they can be transported out of town or until ice forms on Hudson Bay, Blaikie said.
The holding compound, an old army Quonset-type warehouse located about eight kilometres east of Churchill, was taken over by the province in 1979 after Fort Churchill closed. The first cells were built in 1980 and first used in the 1981 season, but it has seen increased use more recently.
Manitoba's polar bear alert program has recorded almost 300 incidents this season in the Churchill area. Almost 60 bears have been captured and held in the compound. Hungry bears stay in the area because the water on Hudson Bay has failed to freeze as early as it historically does.
Bears that refuse to stay away from inhabited areas are placed in the compound. Bears are released when ice forms on the bay where they hunt seals, their main source of food, and remain on the ice flows until about July.