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Dunedin Hospital is to get a new Neonatal Intensive Care Unit (NICU) as part of a $23.4 million development of the Southern DHB's Dunedin facilities.

Other developments will see the acute mental health unit moving to Wakari Hospital, and a long-overdue upgrade of the electricial switchboard and standby generators.

"The new Government inherited a lot of problems here in Dunedin, including important building needs that had been neglected for years," Health Minister Tony Ryall said.

"The current unit is over-worked. At any one time, up to 21 babies are being cared for in a unit that NICU design standards indicate should accommodate three babies."