The site, which is also close to the Inverness Campus, had not previously been available to SPS. A site at Milton of Leys was considered last year.
The new HMP Highland would replace 112-year-old Inverness Prison, which is close to Inverness city centre.
It is one of the smallest and oldest jails in Scotland.
SPS said the new proposed site has been deemed suitable for development as a prison.
Colin McConnell, chief executive of SPS, said: "An agreement has now been concluded with the site owners and SPS intend to pursue a planning application for the site in due course.
"The application for the site will of course include the normal community consultation processes."
"SPS do not intend to pursue any further interest in the site at Milton of Leys."
The proposal to locate the prison on farmland on the edge of Milton of Leys had faced strong opposition from residents of the large suburb.
Justice Secretary Michael Matheson said: "I'm pleased that SPS have now reached this stage and look forward to the development of a new fit for purpose prison which can provide suitable accommodation for people in custody from the Highlands and Islands - keeping them closer to their families and their communities."
The Scottish Prison Service (SPS) has proposed building a new Inverness prison on a site behind the Inverness Retail Park on the A96.