Bosses said the move made sense as the business could "operate more efficiently from a single site, instead of across two separate sites, which are relatively close together".
However, they pledged to help find alternative employment for the 210 staff at the site, either at Halifax or at other Nestlé sites.
"There are currently 210 employees at Castleford. The company’s aim is to offer them alternative jobs with Nestlé. The proposed transfer of production will create 120 jobs between the Halifax and Fawdon sites.
"Nestlé is also creating more than 100 new jobs at its confectionery factories over the next two years. The company therefore has alternative job opportunities for people to consider. If suitable roles are not available, Nestlé will provide training and support for its people to find new jobs with other local employers."
Bulk of production will stay in UK
Under the proposal, about 90% of production from Castleford (After Eights, Toffee Crisp) would remain in the UK, said the firm. "The majority of After Eight production would transfer to Halifax. A small proportion of export production would move to Hamburg which has manufactured After Eights since 1967.
"Toffee Crisp production would transfer from Castleford to Nestlé’s factory in Fawdon, Newcastle upon Tyne. The transfer of production, subject to consultation, would be phased from December 2011 and the Castleford site would not close until December 2012."
David Rennie, md Nestlé Confectionery UK said: “Nestlé Confectionery is performing well in a very tough market but we have to continue to operate as efficiently as possible to remain competitive."
Trade union Unite, which represents the vast majority of the workforce, including the production and engineering staff, said the decision was a 'body blow' for Castleford.
Regional officer John Mallinder said: "Unite has two goals and these are to see that production of the plant remains in the UK, thereby safeguarding jobs; and that the Castleford workforce is redeployed to Nestlé's Halifax plant 10 miles away.’
"This is a body blow to Castleford as the Nestlé plant is the last big manufacturing facility in the town, which has already lost its chemical factories and mining industry."
Unite shop stewards from the Nestlé plants at Castleford and Halifax will meet next Thursday (December 16) to chart the way forward.