Clutha Health Incorporated chairwoman Irene Mosley said the cost of the upgrade was estimated at between $1.8 million and $2.2 million.
About $1.8 million was held in reserve for the project and the group would look at a fundraising programme for any extra costs, she said.
The upgrade would receive no funding from the Southern District Health Board as the health centre is community-owned.
"The focus is on ensuring that plans are right before work begins on the project," Mrs Mosley said.
Clutha Health First chief executive Ray Anton said an increasing demand for space, especially in the GP area, had led to the need for the facility's extension.
The health centre has multiple waiting areas throughout the building and one of the major changes will see one main reception area.
The number of clinic rooms will be increased from five to 14 and they would be used by GPs and nurses.
An accident and medicine centre would be created, plus a covered ambulance-only entrance from Charlotte St.
The project is due to start in February and take place in six different stages over 12 months to minimise disruption.
Cook Brothers Construction Ltd from Dunedin has been awarded the main contract, and tenders for subcontracts would go out in the next few weeks.
Clutha Health First is the Balclutha-based hospital and health centre operated by a locally owned trust, Clutha Community Health Company Ltd, and leases the building from Clutha Health Incorporated. The Clutha hospital serves 17,000, with patients coming from as far away as Lawrence, Tuapeka and Tapanui.
The existing Balclutha hospital opened on December 1, 1998, signalling the end of a battle to retain health services in the town.
The town's former hospital was closed and was replaced with a new, purpose-built facility in central Balclutha.
Clutha Health Incorporated, which owns and manages the hospital buildings in Balclutha, reported an operating surplus of $288,363 for the year ending June 30, 2011, up from the previous year's surplus of $263,934.
Staff and hospital operator, Clutha Community Health Company Ltd, banked a $134,113 operating profit, bringing the company out of the red from last year's deficit of $102,758.
Community Health chairman Brian Dodds said from July 1 this year, Balclutha General Practitioners Ltd was amalgamated into Clutha Community Health Company Ltd to encourage better integration.
The amalgamation process affected operations rather than the financial side, and saw the removal of the team leader community, and team leader inpatient and maternity positions.
Gary Read was appointed to the new role of clinical director and would oversee all other clinical roles within the group.
Dr Helen Clark, from the United Kingdom, was also welcomed as one of the new GPs.
