The build was announced to the public on Thursday and began six weeks ago.
It is called Willow Park Lodge and will be a community hub for residents to use for communal activities.
The lodge includes lounging and dining areas, a gym, spa, arts and crafts area as well as treatment rooms.
Outdoors, there will be vegetable gardens and walking paths that will connect with the surrounding villas and apartments.
There was also a possibility for some additional landscaping to be done, which could include a bowling green.
Construction is scheduled to finish in June of next year with the lodge officially opening by the end of 2024.
Observatory village chairman Peter Robinson was "tremendously excited" to announce their new project.
"It’s going to create such a wonderful focus for this new community."
It will be the second community lodge at the village.
It was necessary to add another as the village continued to grow, Mr Robinson said.
"We have been experiencing tremendous growth and we are building for that growth."
They are in the middle of building 48 villas and 10 apartments further over the hill.
"That’s quite a big community and they need a central hub.
"It’s a congregation area that these people can call their club house. Their own community lodge."
The first community lodge is at capacity, although residents are free to use whichever one they like once the new build is completed.
Mr Robinson was proud to be employing local trades people for the construction.
Residents were notified of the designs and layout via the village’s newsletter on Thursday afternoon.
The money came from operating cash flow and donations from the founders of the Observatory Village Project.
While Willow Park Lodge was intended for residents, there could be opportunities for the wider Oamaru community to use the lodge, manager Scott Elliffe said.
"We want to see it as a vibrant hub for community activity, whether that’s community in terms of the residents or community in terms of the wider community.
"That brings vibrancy to this community as a place to live rather than just being isolated on the hill."
