Sky News radio station said the new capital is projected to be off the main island of Java, the fourth largest island in Indonesia but is home to more than 140 million people, more than half the country's population.
The exact location is still yet to be decided and could take up to 10 years to implement, said the country's planning minister Bambang Brodjonegoro at a news conference after a cabinet meeting.
He added that a new location could be in the eastern side of the sprawling archipelago.
President Widodo’s decision comes less than two weeks after private pollsters said he had won the presidential election which was held on April 17. Official results are not due until May 22.
At the opening of his cabinet meeting, Widodo stressed the need for new thinking about the future. He added that the administration wants to think in a visionary way for the progress of Indonesia and moving the capital requires thorough and detailed preparation.
Jakarta has a population of 9.6 million, with an estimated 30 million in the larger metropolitan area.
The annual economic loss due to traffic congestion in Jakarta is estimated at 100 trillion rupiah (US$7.04 billion). In addition, the low-lying capital is also prone to flooding and is sinking due to over-extraction of ground water.
In making his decision, the Indonesian President had also taken into account the fact that nearly 60 percent of Indonesia's 260 million people live in Java and economic activities were concentrated there.
The world's second-largest metropolitan region is sinking up to 18cm per year. Its road coverage is much lower than that of other big cities, creating a near-permanent traffic jam.
In 2017, President Widodo commissioned a survey from the National Development Planning Agency, or BAPPENAS, to look into sites in Central Kalimantan province on Borneo island.
The chief candidate for a new capital is Palangkaraya, a Kalimantan city that founding president Sukarno once hoped could replace Jakarta as the capital.