The province says the move into community homes by next spring and the closure of much of the facility will allow for more personalized care.
"We'll have plans in place to make this transition as smooth as possible," Frank Oberle, associate minister of services for persons with disabilities, said Monday.
A government official said the change won't save the government any money in the first year, but had no information on whether the closure will eventually lead to cost savings.
The decision was immediately condemned by all three of Alberta's main opposition parties and the Alberta Union of Provincial Employees (AUPE), which represents staff at the facility.
The union said 400 of its members are to lose their jobs, be redeployed or retrained.
NDP critic Rachel Notley said the move goes against Premier Alison Redford's promise to protect vulnerable Albertans.
"Instead of providing adequate funding to protect seniors and vulnerable Albertans, this government is throwing them and their families into chaos," Notley said.
Liberal Leader Raj Sherman said the government is just trying to "save a few bucks."
Wildrose seniors critic Kerry Towle said it makes no sense to shut down an existing facility when Alberta needs more assisted living spaces, not less.
AUPE President Guy Smith called the government's decision "cruel and merciless."
"The Redford government promised not to go after our province's most vulnerable and they broke that promise," Smith said. "Instead, Albertans with developmental disabilities have been targeted and they can't defend themselves."
The government said it has identified potential care providers and will work with residents' families to identify their preferences.
"The needs and well-bring of the people who live at Michener will be top of mind for us, and we will offer our support to them and their loved ones," Oberle said.
Barb MacIntyre, president of the Alberta Association of Community Living, applauded the government's decision to close Michener.
She said it marks an end in Alberta to keeping people with developmental disabilities in institutions.
MacIntyre said these people will do better in community homes.
"While today marks the beginning of new and promising lives for those leaving the institutions, I know they and their families will be anxious," she said in a release.
"We want to assure them we are prepared to support them in realizing the promise of a life in a community in which they are entitled."