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It will be an expansion to the $40million Golden View Lifestyle Village.
The development of the aged-care facility was confirmed last October after its structure and funding were confirmed.
The state-of-the-art facility, named Golden View Care, is expected to cost about $13million.
Earthworks began last month on a section between the retirement village and Nichol's Garden Cafe along State Highway 6 near the State Highway 8B intersection.
It will include 48 hospital beds, a 12-room dementia ward and a palliative care suite.
''There will be swing beds between hospital-level care, rest-home care and respite care
,'' Golden View director Neil Bulling said.
He said 19 assisted-care apartments affixed to the medical facility would also be built as part of the development.
''People can live independently in those apartments but they've got full hospital care if it is needed.''
The first 36 hospital beds and dementia unit were expected to be open in December 2020, Mr Bulling said.
The remaining work is expected to be finished by April 2021.
The palliative complex would also contain a cafe and hair salon for residents.
Concerns around the lack of infrastructure for Central Otago's ageing population had previously been raised by community leaders.
Mr Bulling said the facility was vital for the region.
''It is really needed. There is a huge demand for it in the area now.''
He said the project was more than an extension of the Golden View site.
''We said right at the start we would provide aged care for the village.
''But it is not only providing for that [village], it is providing for the whole area.''
The first resident moved into the village in December 2016, although the establishment was officially opened last October.
Mr Bulling said the remaining villas were nearing completion.