A multi-million pound deal with a Midland property developer was approved by Birmingham and Black Country Strategic Health Authority yesterday.
Wordsley Hospital, part of the Dudley Group of Hospitals NHS Trust, has been bought for more than £14.7 million by Mar City Developments.
The site is one of three being closed by the SHA after the Dudley Hospitals PFI scheme was approved last year.
The Solihull-based firm, one of 16 who submitted bids for the site, plans to build a residential development on the land.
Services are set to be transferred to Russells Hall Hospital, which has been extended.
At the SHA's board meeting yesterday, the authority's deputy chief executive Tom Taylor said the deal was £1 million more than health chiefs had expected.
"Mar City will develop the site over the next three or four years. If, at the end of the period, it is worth more than £235 per square metre, we will receive additional payments.
"Dudley Group of Hospitals has already approved the development of the Wordsley site, and after we approved the sale today, work can now begin."
It had been hoped the 19th century hospital buildings would be saved, particularly the clock tower, administration block and chapel.