It is one of 18 schools nationwide and the only Otago school to receive money in the latest allocation from the Government's Schools Replacement Property Programme.
The school already has $196,000 in reserves for the work and a $205,000 top-up means a new facility is one step closer.
Principal Joy Beck was "absolutely rapt" with the funding and was looking forward to ensuring the new facility was up and running as soon as possible.
The announcement was made by Labour's Clutha-Southland candidate, Don Pryde, to the school earlier this week, but it was only after being approached by the Otago Daily Times and several phone calls to the Ministry of Education later, that the full picture emerged.
Initially, the school thought it may have been given an extra $392,000 but this figure was not correct. But Mrs Beck was still thrilled with the allocation.
Mr Pryde said he was delighted to see Kaitangata included on this year's replacement property programme which has a total pool of $20 million.
Since it was launched in 2002, the programme has contributed $112 million to 79 projects.
This year's allocations include money for nine new schools, 130 new classrooms and modernising existing schools.
Mrs Beck said the hall and gymnasium building was "falling down" and badly in need of replacement.
The rest of the 125-pupil, six-teacher school had been modernised and updated over the years except for that building. She was "thrilled and over the moon" the oldest part of the school would now be replaced.
