Modi has told Home Secretary Anil Goswami to set up the special department within the ministry in the 'shortest possible time'.
The message was conveyed by Modi himself over telephone, home ministry sources said.
BJP MP RK Singh, who was India's home secretary just before he fell out with the Congress government and joined the saffron party, has been tasked with working out the details of the new department in consultation with officials who were once his junior in the home ministry.
Modi had campaigned hard during the recent election on the issue of illegal infiltration from Bangladesh and Pakistan, especially in Assam and West Bengal.
But a senior BJP leader told bdnews24.com that this should not upset Dhaka or Islamabad because this was purely an 'internal security move'.
"We have a right to stop illegal migrants who come here and take away our jobs and we have a right to stop terrorists like Ajmal Kasab coming into our country.
“Modi's understanding is that India should have a proper network like USA's Homeland Security to prevent the frequent acts of terror or clashes between natives and migrants as happens in Assam," the top leader who knows about the proposal said.
But he was not willing to be named on grounds he is not authorised to speak to media.
He said RK Singh has dug up the Madhav Godbole report on illegal migration that was gathering dust in the home ministry and may use it as the basis for kickstarting the new department.
This department will be headed by a senior joint secretary and will closely liaise with the Mobile Task Forces of the state police forces to prevent illegal migration and detect those who have crossed over illegally.
"But they will primarily try to stop fresh incidents of illegal migration by implementing the recommendations of Madhav Godbole committee set up in the 1990s," the BJP leader said.
Modi is yet to finalise whether he retains the Home portofolio himself and places a trusted aide like Amit Shah as minister of state in charge of critical departments like Internal Security and the proposed anti-infiltration wing -- or whether he places the department under a senior BJP leader like Rajnath Singh with someone like former home secretary R K Singh as his minister of state.