Voltage islands enable a core-level power optimization of ASIC/SoC designs by utilizing a unique supply voltage for each cluster of the design. Creating voltage islands in a chip design for optimizing the overall power consumption consists of generating voltage island partitions, assigning voltage levels and floorplanning. The generation of voltage island partitions and the voltage level assignment are performed simultaneously in a floorplanning context due to the physical constraints involved. This leads to a floorplanning formulation that differs from the conventional floorplanning for ASIC designs. Such a formulation of a physically aware voltage island partitioning and method for performing simultaneous voltage island partitioning, level assignment and floorplanning are described, as are the definition and the solution of floorplanning for voltage island based designs executed under area, power, timing and physical constraints. The physical planning of voltage islands includes: a) characterizing cell clusters in terms of voltages and power consumption values; b) providing a set of cell clusters that belong to a single voltage island Random Logic Macro (RLM); and c) assigning voltages for the voltage island RLMs, all within the context of generating a physically realizable floorplan for the design.