Sharia law in Brunei already covers some family issues, including aspects of marriages, deaths and inheritances and bans the sale and consumption of alcohol.
Expansion of Sharia, which will apply only to Muslims, will be in phases over a 6-month period starting in April, The Brunei Times reported.
The country's civil courts will continue to operate under English civil law that has been used since the country was a British protectorate.
The announcement was made by Hassanal Bolkiah, sultan of Brunei Darussalam, in an address to the educational and legal conference Knowledge Convention in the capital Bandar Seri Begawan, The Brunei Times report said.
He said the Sharia penal code is "now part of the great history of our nation" and a "special guidance" from Allah.
"It is because of our need that Allah the Almighty, in all his generosity, has created laws for us, so that we can utilize them to obtain justice," Bolkiah said.
"The step we are taking doesn't in any way change our policies."
But Sharia law could include stoning for adulterers and the severing of limbs for thieves, although government officials have said in the past that judges have discretion in sentencing, the BBC said.
Brunei's population of more than 400,000 has a high living standard through oil and gas revenues and the country has free medical care and education.
Brunei is on the north coast of the island of Borneo in Asia's South China Sea and occupies 1 percent of the island -- about 2,220 square miles.
The country is surrounded by the Malaysian state of Sarawak and separated into two by the Sarawak district of Limbang. To the south is Indonesian territory.
Brunei gained independence in January 1984, becoming a member of the British Commonwealth of former colonies and protectorates. Also that year it joined the Association of Southeast Asian Nations and the Organization of the Islamic Conference, which is now called the Organization of Islamic Cooperation.
Sunni Islam is the religion for around two-thirds of the population, with 13 percent Buddhist and 10 percent Christian. With some exception, freedom of religion is guaranteed.
The Brunei Times also reported Brunei State Mufti Awang Abdul Aziz, the country's top Islamic scholar, saying the expansion of Sharia law shouldn't be a concern to other religions.
Abdul Aziz also was addressing the conference, whose theme was Sharia Criminal Law Ensures Justice And Security For Everyone.
He said, "The criminal law created by Allah guarantees justice for everyone and safeguards their well-being."
The mufti confirmed the right of stoning and caning and having the death penalty under Sharia law but assured tourists needn't fear having their hands cut off.
"Let us not just look at the hand-cutting or the stoning or the caning per se but let us also look at the conditions governing them.
"It isn't indiscriminate cutting or stoning or caning. There are conditions and there are methods that are just and fair," Abdul Aziz said.
He also decried the U.N. call in 2007 for a moratorium on the death penalty.
An official visit to Brunei was on U.S. President Barack Obama's Asia trip planned for this fall that was to have included the Asia-Pacific Summit in Indonesia. However, the White House canceled the trip because of the recent U.S. government shutdown.