Construction on the museum, titled the Victorious Fatherland Liberation War Museum, is beginning now.
Kim Jong Un visited the site this week, KNCA reports. The North Korean leader reportedly said the museum will serve as a base for "anti-U.S. education".
The USS Pueblo was captured in 1968. Whether or not the ship was in North Korean waters is a subject of dispute between the US and North Korea, but an ensuing 11-month long hostage crisis — which saw North Korea torture the captured crew — was a low point of the Cold War and became known as the Pueblo affair.
The ship had previously been docked on the Taedong River in Pyongyang.
Officially the Pueblo is still a commissioned vessel. It is the only Navy ship currently being held captive.