Approval of the outline business case will see NHS Lothian take the next step in the process to select a contractor to design, build, finance and maintain the new facility.
Tenders are due to be invited later this month to build the hospital next to the Royal Infirmary of Edinburgh at Little France.
Negotiations over the site for the new building, currently car park B at the Royal Infirmary of Edinburgh, have delayed the project but these were completed in August when the site’s owners agreed to give the health board the land in exchange for another site.
Dr Charles Winstanley, Chair of NHS Lothian said: “We are working closely with the Scottish Futures Trust to plan the procurement process and, as required, we expect to advertise the project in the Official Journal of the European Union before the end of the year.”
Health Secretary Alex Neil said: “There have been delays with the new Sick Kids Hospital in the past, due to land and commercial issues with an inherited PFI contract on the proposed site. I am pleased to say that there is now a framework in place to resolve the legal and commercial issues that arose in the original contract.
“This project is part of a £750m health pipeline delivering a range of improvements to hospital and community health facilities right across Scotland.
“We have already seen £1bn being pumped into our hospitals and health centres since 2011 and I can confirm that another £1bn will be invested over the next two years. In 2013 alone we will invest nearly £500m.