Staff were told yesterday the first stage of the redevelopment plan, which will upgrade some substandard facilities and make the most of the available space, had been approved by Health Minister Tony Ryall.
"We have lift-off," Mrs Blake said.
"In the midst of all this heartache and turmoil going on with regard to the earthquake, it couldn't have come at a better time, really."
The first major developments will be the relocation of Dunedin Hospital's 16-bed acute mental health ward 1A to Wakari Hospital.
Contractors have been engaged for the job since September and work will start on Monday.
It will be the largest clinical project at Wakari Hospital during the redevelopment.
The new 16-bed ward will replace a ward described by the Ministry of Health as the " highest priority mental health unit for replacement in the country". The space vacated will become management offices.
It is expected the shift will be completed by September.
Car-parking improvements, upgrading the lifts in the main block and upgrading conference rooms will also be completed this year at Wakari Hospital.
In the other two major redevelopments the neonatal intensive care unit (NICU) and the paediatric wards will be shifted to one ward on the first floor of the Dunedin Hospital ward block.
Mrs Blake said while there was still design work to be done in this area, staff in the NICU had been so delighted at the announcement they " broke out a box of chocolates".
Staff had coped in difficult conditions in that area for " such a long time", she said. To allow this relocation at the end of 2013, the work next year will involve shifting some offices, including those occupied by information systems, to Wakari, and the Dunedin Hospital staff cafeteria will be shifted to the existing pebble garden.
Wakari Hospital will also gain a staff cafeteria in the upgrade.
In all, 16 individual projects will be funded by the money promised in June last year by Mr Ryall on a Dunedin visit.
The whole project is expected to be completed by December 2013, six months later than originally planned.
