The new islands will be built on either side of the Burj Al Arab – the city’s luxury sail-shaped hotel.
It is the latest development planned by the emirate as it aims to attract 20 million visitors a year by 2020, when Dubai will host the World Expo 2020 exhibition.
Spanning four million square feet, Marsa Al Arab will be made up of two islands, one dedicated to entertainment and family tourism and the other featuring luxury villas and a private marina, state news agency WAM reported on Monday.
Around 4.6 million tourists visited Dubai during the first quarter of 2017, up by 11 percent compared to the same period of last year, according to Dubai Tourism data.
Marsa Al Arab will feature hotels, waterfront apartments, 140 villas, a marina, a water park and a theatre with capacity for 1,700 people to host Cirque du Soleil, local media reported.
Work on the project will break ground next month and be completed by late 2020, WAM said.
The agency did not mention how the project would be funded.
Dubai is working on several big projects due for completion in the next few years, which are funded by debt.
It is building the World Expo 2020 exhibition site, an extension to Dubai’s Metro system and Al Maktoum International Airport, a new airport being developed on the edge of Dubai, which will serve up to 146 million passengers by 2025.
Marsa Al Arab will add 1.4 miles of beach to the emirate’s coastline, WAM said.
Dubai's most famous artificial island, Palm Jumeriah, is home to several hotels, villas and apartments.
But other islands it planned to develop were stalled or scaled back after the emirate's 2009 debt crisis.
Palm Jebel Ali, which began construction in 2002, has yet to be completed, while plans for Palm Deira have been reworked to create a scaled-down project called Deira Islands.
Another man-made archipelago, The World, a 300-island chain laid out in the shape of the world's continents, has only been partially developed.
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