People from Jersey who are jailed outside the island will also be able to serve the sentence in the island.
The Home Affairs Minister said he hoped the law change would reduce the number of people in La Moye prison.
Senator Ian Le Marquand said: "The aim is to change the system so we then move to unrestricted transfers, and that will then produce a secondary benefit in terms of a reduction in the prison population."
There is currently no law governing the sending back of prisoners from places outside the UK.
Under this new law, the Home Affairs Minister would issue a warrant for a transfer.
The prisoner would have to be told in their own language and the effect of the warrant on the prisoner would have to be considered.