Former detainees told harrowing stories of physical, sexual and verbal abuse at the facility, which has operated in northwest Tasmania for some two decades.
The inquiry, which examined child sexual abuse across state government-run institutions, held public hearings last year and is expected to hand down its final report in May.
The state government has insisted all current detainees at the centre are safe.
It has remained steadfast with a pledge made in September 2021 to close the centre by the end of 2024 and set up new therapeutic facilities.
The government on Thursday announced two locations in the greater Hobart area had been shortlisted as potential sites for a detention facility.
The plan is open to public consultation until April 17 before a final decision is made.
Minister for Children and Youth Roger Jaensch said the sites - one between Pontville and Mangalore and the other near the East Derwent Highway - were chosen because of their size, separation from residential areas, limited visibility from surrounding properties and proximity to Hobart.
"The views of key stakeholders and advocates will also be directly sought, as will the views of young people with direct experience of the youth justice system," he said.
The facility will be able to hold up to 20 young people but is expected to operate at about half that number.
Site works are expected to begin next year.
The state government is undertaking reform of the youth justice system and is raising the minimum age of detention to 14.
Evidence at the inquiry prompted calls from political parties and human rights advocates for Ashley Youth Detention Centre to be closed immediately.
Counsel assisting the inquiry Rachel Ellyard said it was open for the commission to find "rather than (it) being about monsters infiltrating. You may find it is Ashley that is the monster".
16°C