Approximately 75 affordable homes could be built on the site by a housing association, providing independent living with care provision where needed.
Thornbury Hospital closed down a few years ago and was recently demolished.
South Gloucestershire Council will work with a housing association on the project.
The cabinet approved plans to move ahead with the housing development on Monday, July 14.
Liberal Democrat Councillor John O’Neill, cabinet member for adults and homes, said: “It’s important to us because it’s 100 per cent affordable homes for people who will spend the rest of their lives in these.
“Not only does it help with the elderly people who we’re going to put in there, it will free up social housing and help the HomeChoice list.”
The old Thornbury Hospital site, before it was demolishedSouth Gloucestershire lacks enough extra care housing, a sort of accommodation where elderly people live independently and individually, with their own front doors, but with additional care and support on site.
There are also community spaces too, to help prevent social isolation.
The council will work with a housing association, who will build the accommodation and then manage the building.
It’s unclear when construction will begin.
Three years ago the council bought the hospital site from the NHS, which will also partly be used for a new health centre.
Planning permission was approved for the new health centre in January, providing a new home for existing GP surgeries.
The plans also include consulting rooms and offices.
The progress was welcomed by councillors on the scrutiny commission on Wednesday, July 9.
The old Thornbury Hospital site has been reduced to piles of bricks and rubble. Image: Doug Fowler (Image: Doug Fowler)
Conservative Cllr Matthew Riddle said: “This is very good news.
“It’s good to see the old hospital knocked down because it was built in about 1930 and we’re building something brand new with all the energy conservation and heat conservation things in place.
“It’s good to see the site carrying on caring, but in a very modern way.”
Council bosses hope that the new site will cut costs, both on expensive care homes and by freeing up social housing for people currently living in temporary accommodation.
Social care and temporary housing are eating up huge amounts of money in council budgets across the country, leaving less left over for other services.