The £451m rebuild of Royal Liverpool hospital has been given the green light, after months of uncertainty.
Plans for the new 643-bed hospital were approved in March, but the new coalition government had considered scrapping the project.
Hospital bosses were warned that a decision might not be made until autumn, but health minister Simon Burns has confirmed the work will go ahead.
Tony Bell, hospital chief executive, said they were "absolutely delighted".
Building work on the hospital, which is receiving £328m of funding through a Private Finance Initiative (PFI), is due to start in 2012.
Plans had been agreed by the previous government shortly before the May elections, with the former health secretary, Andy Burnham saying it would "lead the way" in regional health care.
But the new Treasury put a stop to most big projects as it went through a detailed spending review.
Mr Bell added: "We have had a huge amount of support for the scheme and I'm really pleased that this removes uncertainty for our plans to create a state-of-the-art hospital, which will change the face of healthcare in Liverpool.
"It will link academia, industry and health, researching new medicines, which will improve patient care and outcomes, have economic benefits and help to create jobs."
Louise Ellman, MP for Liverpool Riverside, added her support: "I am delighted that the government has given the green light to the Royal - this investment is very much needed, we need top-class health facilities to go with the very committed health team we have got."
Across the country, the new coalition government has axed £2bn worth of new projects as part of its cost-cutting measures.