The new building, on the corner northwest corner of the hospital site on Bonaira Street, should be completed by the end of the year.
This will allow all the outpatient health services currently provided at the old Hospital to relocate and see inpatients relocated to Port Kembla Hospital.
Once this has been done, work will begin on the demolition of the old hospital to make way for the development of the Blue Haven Centre of Aged Care Excellence.
The project involves the erection of a 134 bed aged care facility, restoration and refurbishment of Barroul House, and construction of a number of independent and assisted living units. Council will be borrowing $19 million to fund the work.