Unlike age-related brain changes linked to motor activity, neural alterations related to self-motion perception remain unknown. Using fMRI data, we investigated age-related changes in the central processing of somatosensory information by inducing illusions of right-hand rotations with specific proprioceptive and tactile stimulation. Functional connectivity during resting-state (rs-FC) was also compared between younger and older participants. Results showed common sensorimotor activations in younger and older adults during proprioceptive and tactile illusions, but less deactivation in various right frontal regions and the precuneus were found in the elderly. Older participants exhibited a less-lateralized pattern of activity across the primary sensorimotor cortices (SM1) in the proprioceptive condition only. This alteration of the interhemispheric balance correlated with declining individual performance in illusion velocity perception from a proprioceptive, but not a tactile, origin. By combining task-related data, rs-FC and behavioral performance, this study provided consistent results showing that hand movement perception was altered in the elderly, with a more pronounced deterioration of the proprioceptive system, likely due to the breakdown of inhibitory processes with aging. Nevertheless, older people could benefit from an increase in internetwork connectivity to overcome this kinesthetic decline.