All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His slave and Messenger.
There is no doubt that the gathering of worshippers in one mosque in the neighborhood is better and greater for reward. Ubayy ibn Ka‘b reported that the Prophet, sallallaahu ‘alayhi wa sallam, said: "The prayer of a man in congregation with another man is better than his prayer alone and his prayer in congregation with two men is better than his prayer in congregation with one man. As the number increases, it becomes dearer to Allaah." [Ahmad, Abu Daawood, An-Nisaai’i and others]
Therefore, if building this new mosque will result in decreasing the number of worshippers in the congregational prayers at the old mosque or leads to abandoning it totally, then the optimal thing, observing the fundamental objectives of the Islamic Sharee‘ah, is to not build it. In this case, it is better to restore and renovate the old mosque and build a minaret with the money that was intended for building the new mosque or with any other money.
Since the brother who wants to build the new mosque intends to attract a greater number of worshippers to the mosque or other such legitimate purpose, then we advise him to look for another neighborhood where a mosque is needed or spend it on a small mosque that needs an expansion and most neighborhood mosques are in need of expansion. So he should spend his money in them.
However, we do not call for banning the construction of a mosque near another as long as there is no harm intended.