The plan to replace the Castle Market with a new development is a central part of the regeneration of the city centre.
A Sheffield Council spokeswoman said: “Detailed designs will be completed in time for a start on site next year and completion towards the end of 2013.”
The owner of the land is Scottish Widows, which has allowed the council to use the site rent-free in exchange for a 250-year lease on the rest of the street.
The new market will be built on cleared land between Eyre Street and The Moor and will contain 200 new market stalls and six separate retail units.
Labour councillor Mohammad Maroof said: “I’m delighted that after a long period of delays, we are now seeing the regeneration of the Moor that we have been waiting for.
“We are delighted that Scottish Widows have reached an agreement with the council so that this can finally go ahead.”