Justice Minister David Ford said he favoured keeping Magilligan Prison open, on 26 November 2012.
In an Assembly statement, Mr Ford said he was "now of the opinion that a convincing case might be made for the retention of a prison in the northwest on the Magilligan site.
The minister said that he had been influenced by the "positive approach to partnership working" shown by local councils and businesses.
Mr Ford said the final decision would require evidence that issues around rehabilitation and family links could be addressed.
The minister also outlined a proposal for the re-zoning of Maghaberry Prison into three areas.
This would see separate accommodation for remand prisoners, low to medium security prisoners and high security prisoners.
Mr Ford also announced his intention to reconfigure the Hydebank Wood site as "a secure college, which will offer a full programme of skills-based activities and support".
On accommodation for women prisoners, the minister confirmed his commitment to developing "a new, separate custodial facility for women".
Paul Givan of the DUP, who chairs the Justice Committee wanted assurance that the development of the three "mini-prisons" at Maghaberry would not result in republican prisoners being granted political status.
Mr Ford said there would be no "going back 30 or 40 years to the conditions that existed in the Maze".
Sinn Fein's Raymond McCartney noted that the proposals followed closely the proposals made by Dame Anne Owers and her prisons review team.
The minister said he had not followed the Owers recommendations slavishly. He added that he was happy to appear before the Justice Committee to explain his proposals in greater detail.
Tom Elliott of the UUP wanted to know whether the intention was for a newbuild or a reconfiguration of the Magilligan site.
Mr Ford indicated that "the elderly H blocks and some of the other buildings are not fit for purpose".