Singapore last year closed its much maligned budget terminal, which had a capacity of only 4.6 million passengers and few facilities such as shops.
Low cost airlines have blossomed in Asia the past few years as incomes rise and demand for affordable travel increases. Aviation analysts say budget airlines have accounted for almost all the growth in passengers at Changi in the past several years.
The new terminal, which will be built on the site of the mothballed budget terminal, is expected to handle up to 16 million passengers annually.
Some 51.2 million passengers passed through Changi last year.