The 51-room George St hotel has been bought by Dunedin property developer Carl Angus and will be closed on July 1.
The complex will then undergo a ''major overhaul'' over a period of five or six months.
Hotel general manager Dean Nicol, who is among those to lose their job, said guests who had booked in after July 1 were now having to find alternative accommodation.
He said staff were informed of the closure at the start of this month, soon after the building was sold.
The news came as a ''bit of a shock'' to staff, who were aware the building was for sale but had thought their jobs would be secure.
''We thought it would be [sold] more as a going concern, because accommodation in Dunedin is quite restricted.''
However, staff were trying to remain ''positive'' as there would be work opportunities when the Distinction Dunedin hotel opened in the former chief post office in October.
Positions would also be available in the new development on the Cargills site.
The closure would place extra pressure on Dunedin's already stretched accommodation market and hotel staff had been advising people who had already booked rooms they would no longer be available.
Dunedin's iSITE visitor centre had helped people find alternative accommodation and Mr Nicol was confident people coming to the Fleetwood Mac concert in November would be able to find other rooms - with the University of Otago opening up some of its residential colleges.
Mr Angus said ''quite a bit of money'' was going into the redevelopment of the property and it was ''quite possible'' the site would be home to two accommodation providers.
''It's a fantastic building, but it's been let go, and it's time it had a major overhaul and that's what we are going to give it,'' he said.
''The aim is to make it the best motel complex in Dunedin.''
The hope was for at least 4.5-star accommodation and there would ''quite possibly'' be more rooms in the new complex than in the present hotel.
''They will certainly be a significantly higher standard than what is there at the moment.''
He would not reveal how much he paid for the building, but the site has a capital value of $3.6 million, according to the Dunedin City Council.
The redevelopment would take about five to six months from when he took ownership of the building in August.
The building was sold by Anaro Investments Ltd, an Oamaru company which manages a property portfolio worth about $400 million.
An accommodation provider has been on the site since 1962, when Cherry Court opened.
It was renamed Cargills Hotel in 1988 after a change in ownership.
