The project, which involves building an atrium linking the polytechnic's F and H blocks and transforming the ground floor of both buildings into a ''student hub'', was approved in the closed section of Friday's council meeting.
Construction was planned to begin by the end of this year and would be completed in stages, with the final stage being completed in late 2015 or early 2016.
The combined ground floors of the upgraded buildings would contain a cafe, computer rooms, Wi-Fi access and meeting rooms.
It would also consolidate the polytechnic's student support services, bringing student administration, support, advisory services and the Otago Polytechnic Students' Association under one roof.
Speaking after the meeting, chief executive Phil Ker said the project, which was the largest in the 10 years he had been chief executive, would be ''marvellously positive'' for the polytechnic.
''We are an attractive institution for students that don't come from Otago - around half of our students are not from this city - and we want that to continue.
''One way to help ensure that continues is to make sure that our learning facilities are up with expectations,'' Mr Ker said.
The creation of collaborative and social learning spaces was part of a ''world-wide trend'' to meet the needs of the ''modern learner'', he said.
Asked if the investment was overdue he said: ''It would be fair to say that it's time that we put this investment into contemporary space.''
The fact it could afford to make such an investment was also a vote of confidence in the health of the institution.
Chief operating officer Philip Cullen said Mason and Wales had been chosen as architects and Signal as project manager. The polytechnic was in the process of choosing other consultants for the project.
The project comes about as the University of Otago is about to undertake a number of major projects as part of its $358 million priority development plan.
