Laurence Rossignol made the announcement on Monday, World Alzheimer’s Day, telling a press conference that the project in southwestern France will be "a place where it is possible to continue to live a real life with your loved ones."
Rossignol announced that the state would release 3 million euros per year to finance the operating budget for the village.
The project in the department of Landes follows the model of a Dutch dementia facility where residents can live a seemingly normal life, but in reality are being watched all of the time.
There, caretakers staff the restaurant, grocery store, hair salon and theatre, as well as living quarters, though the residents do not always realise they are being helped by carers and volunteers.
"This is a project for Landes, but certainly it is also a national project," Rossignol said of the French village which should be "an emblematic place which will mark a turning point in the management of the disease".
The overall cost of the project is estimated at around 22 million euros. That includes construction, furniture and running various facilities.
Henri Emmanuelli, who chairs the Landes department council, declined to give details at this stage of the overall financing but expects it will include donations from foundations and private sponsors.
The annual operating budget is estimated at 8.5 million euros, included the contribution from the state, Francis Lacoste, who has piloted the project for the department council, told news agency AFP.
"The remaining 5.5 million euros will be divided between the department and the state,” sharing financing with independent social allowances and fees for residents “estimated between 60 and 65 euros day, "according to Lacoste.
The exact location within the department has not yet been chosen, but the first stone is expected to be laid in January 2017 and the first residents should arrive in June 2018.