The Government has agreed to give the University Hospital of North Staffordshire NHS Trust #55 million so it can start building a new maternity and oncology block ahead of a major hospital development project, bosses said.
Work will start on the landmark building in Stoke-on-Trent by December this year and is set to open in 2009.
The new maternity centre will replace the only high-rise block on the City General site and the new oncology unit will bring cancer services currently scattered around the two main trust sites under one roof.
Antony Sumara, chief executive at the trust - which is struggling with debts of #15m - said he was delighted for staff and residents that the Department of Health had agreed to fund this first building of the new hospital from public money.
He said: "It means that work can start earlier, the trust can start to benefit earlier from the efficiencies it will bring, and the unitary payment on the PFI hospital will be reduced.
"I know it will be difficult for our staff to understand why we still have to make redundancies when we are receiving #55m of public investment, but we have to get our trust back into recurring balance and one-off capital payments cannot be used to help with that."
Mr Sumara said negotiations into the final cost of the rest of the hospital building programme were ongoing.