The upgrade, to be completed by early 2015, will improve patient amenities at the ageing hospital and provide staff with new offices and support spaces.

It will also include a multipurpose gym which will be used for pulmonary rehabilitation, antenatal classes and other chronic and complex conditions.

"We want to try and take pressure off the region's two major hospitals - Wollongong and Shoalhaven - and expanding Shellharbour will do that," the Liberal MP said.

"It will also provide a growing community with the relevant health services it needs."

Botany-based company Fugen Constructions has been awarded the contract and is expected to begin work by August.

The company completed the $6 million refurbishment of the Wollongong Mental Health Unit in 2013, and upgraded the Lawrence Hargrave Private Hospital's hydrotherapy pool in 2012.

Construction of the ambulatory care unit at Shellharbour Hospital will include additional car parking and a lift connecting the ground and lower ground levels.

The expansion is in line with Illawarra Shoalhaven Local Health District's vision of a "hub and spoke" model of healthcare, with Shellharbour to join Wollongong and Shoalhaven as major hubs.

Preliminary government plans to redevelop the hospital also include an expansion of services at the site, notably an integrated intensive care, high dependency and coronary care unit, and oncology and haematology services.

Existing emergency department services, operating theatres, day surgery spaces and in-patient beds will also be increased under the plan, which is to be completed in 2015.

"We're finalising planning and design for the overall redevelopment of the hospital now and ... all of those services need to be included," Mr Ward said.

"But what I'm keen to do is once that planning work is concluded, see it transformed into actual work at the hospital."

The government pledged $6.7 million for the unit in the 2014-2015 state budget.