The announcement follows last week's $2.3 million funding for a four-bed medium secure unit at Wakari Hospital for people with intellectual disabilities.
The $24.4 million project is part of the $38 million stage one of the master-site project, designed to make the most of the Wakari and Dunedin sites and allow for the upgrading of substandard facilities.
The funding announced yesterday will also go towards upgrading Dunedin Hospital's main electrical switchboard and standby generators.
Commenting on the news later, board chairman Errol Millar said it had been a "lolly scramble" day.
Board finance and funding general manager Robert Mackway-Jones said the announced funding was below the likely full cost of the project, which could be about $25.1 million.
He said the board was delighted with the funding and would "have to make the project fit within the available funding".
The first part of the upgrading project will be moving the acute psychiatric ward at Dunedin Hospital to Wakari Hospital.
Dunedin Hospital chief operations officer Vivian Blake said she expected alterations to Wakari Hospital to accommodate the move would be done first.
She was "over the moon" about the funding and already fielding messages from delighted staff.
Plans for the neonatal intensive care unit (NICU), where cot numbers will increase from nine to 19, were not as far advanced.
Mr Ryall said up to 21 babies were being cared for at any one time in a unit NICU design standards indicated should accommodate three babies.
The minister noted the "extremely crowded" conditions and the lack of privacy.
NICU medical director Dr Roland Broadbent said staff were excited about the new unit.
He expected it would be about two years before the unit would be moved from the fifth floor of the ward block to the first floor.
It will be sited in space now occupied by board offices and the boardroom, which will be relocated to Wakari Hospital.
A new unit would offer more appropriate develop- mental care for babies to ensure the best outcome, along with more privacy.
It would also allow better infection control.
Mr Ryall also visited the acute mental health ward 1A, a facility described by the Health Ministry as the "highest priority mental health unit for replacement in the country".
In his speech of thanks, Mr Millar paid tribute to Dunedin list MP Michael Woodhouse for his work in putting the Dunedin case to Mr Ryall.
When the $24.4 million project is completed, it will cost the board $1.9 million in annual capital charges, but Mr Mackway-Jones said this was included in the board's long-term planning.
• The new four-bed medium-secure unit at Wakari Hospital, as part of the regional intellectual disability secure service, is designed to help move some people with an intellectual disability from the secure inpatient unit back into the community.
The existing 13-bed facility will also be modified and security for the building upgraded.
It is expected the expansion will result in work for an extra 14.8 full-time equivalent staff.
