Gary and Brenda Lee, the owners of nine-year-old Café Rue in Moray Pl, said the development was a "natural progression".
"It's something we've always wanted to develop with the existing client base," Mrs Lee said.
Café Rue and the couple's outside catering business employ a mix of nine full-time and part-time staff. Mr Lee expected another four staff would be required for the bar.
The Lees are considering extending operations to seven days, and possibly five nights, per week.
The new 50sq m bar is in part of a former hair salon. It has big windows and is a corner site, opening on to Stuart St. It became available after liquidation proceedings against the former lessee in late July.
The Lees have begun knocking through a large entrance into Café Rue and have walls and ceiling to refurbish, plus bar installation and seating for up to 25 people.
During recent months in lower Stuart St and the Octagon, more than $700,000 has been spent in one major bar renovation and another new building, plus revamping of two cafés, with speculation other premises could also be in for makeovers.
Without the need for a kitchen installation, Mr Lee estimated the renovation would cost less than $200,000.
He did not see the increasing number of premises around Stuart St and the Octagon as competition, but as complementary to one another.
The street was becoming an overall destination, much like St Clair's Esplanade and its four licensed cafés and restaurants, he said.
The first function is booked for December 8.
A formal opening would be held later in December.
