The so-called tent village at Hal Far, an open centre for some 300 migrants, is being replaced by rows of new pre-fabricated houses.
The installation of the houses started on Monday and will be completed in three weeks' time.
80% of the €900,000 project is being funded by the European Regional Emergency Fund.
Home Affairs Minister Carm Mifsud Bonnici said funds were allocated to the project after a visit to Malta last year by the EU Commissioner responsible for immigration, Cecilia Malmström.
He said this was an act of solidarity by the EU and by Malta to the migrants.
64 of the homes are being installed at Hal Far and 36 at Safi open centre.
The homes also replace old mobile homes which had been provided by the Italian government.