To answer this question it’s important to understand the Holocaust as a process. It was not a single decision made by Hitler at one point, but an escalating operation that originated over a decade with thousands of people involved, surely at the top of the regime.

The first concentration/labour camps were established as early as 1933 (Dachau) immediately after Hitler became Chancellor. Over the next years the system of these camps grew: "racially undesirable elements" of German society such as Jews, criminals, homosexuals, and political opponents were held there. Simultaneously the overall language of the regime became much more radical, especially against Jews. Thousands of people died in these camps, they were shot or they starved - it was mass murder, but not in the industrialized scale we saw in the war.

A turning point was in June 1941 when Germany attacked Russia. This was an ideological war, the German aim was not only to conquer „Lebensraum" but to exterminate the „Bolshevik-Jewish race“ in Europe - several million people, mostly in the East. That’s why the German army was followed by several „Einsatzgruppen“ („killing squads“ of hundreds of soldiers each) all over the Eastern front. The Einsatzgruppen’s task was simple: find Jews and kill them. Most of these Jews and „partisans“ were shot, so this was a rather „slow“ operation. Additionally several Gauleiters in the occupied territories complained that there still were Jews in their Gau’s, even though the regime had promised to find a solution.

So shortly after the invasion things developed quickly. In Dec. 1941 minister of propaganda Joseph Goebbels wrote in his diary (paraphrased): „The extermination of the Jews needs to happen now.“ A few weeks later in Feb 1942 there was the Wannsee Conference, authorized by Hermann Göring and chaired by Heinrich Himmlers second in command Reinhard Heydrich. That day the „final solution of the Jewish question“ was decided. Here are figures of the Jewish population in Europe they came up with at this conference:

http://i.imgur.com/5fDJvfw.jpg

("Altreich" is Germany, "Generalgouvernement" is basically Poland, "UdSSR" is Russia)

That's when the formal decision was made to build extermination camp, and the numbers show why most of these camps were rather far in the East. There was still a war going on, capacity of transporting played a role so it was a logistical and a logical choice to deport the people to the East. The idea was to comb through Europe from West to East, starting in France - and that's what happened over the next months and years.

Plus of course there was the regime’s fear that people in West might start asking questions.

There’s an excellent book by German Researcher Nikolaus Wachsmann: „KL: A History of the Nazi Concentration Camps“. http://www.worldcat.org/title/kl-a-history-of-the-nazi-concentration-camps/oclc/906029434