€15 million has been allocated to redevelop the National Rehabilitation Hospital (NRH) in Dun Laoghaire.
The funding will be used to proceed with a new 120-bed building on its Dun Laoghaire site.
Labour TD Eamonn Gilmore welcomed the news and said it is one of Ireland's most important health facilities.
He said: "The NRH is currently located in buildings which have outlived their time. There has been a need, for a long period of time, to develop a new facility on the site at Rochestown Avenue.
"I have been working with the hospital authorities for many years to develop what will, in effect be a new hospital. Together with former Minister for Health, James Reilly, I announced the Government's intention to go ahead with the re-development.
"Since then, I have been working on the funding implications, with Minister Varadkar, Minister of State Kathleen Lynch and the Minister for Public Expenditure and Reform Brendan Howlin.
"Ministers Howlin, Varadkar and Lynch have visited the hospital in recent times to see at first hand the great work which is undertaken there. I wish to thank them for responding positively to the case."
(CD/JP)
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