The Midland Metropolitan Hospital will be funded by both the public and private sector through a Private Finance 2 deal.
The deal includes £100m of state funding and the Sandwell and West Birmingham Hospitals NHS Trust has now been given approval to seek a PF2 partner.
Construction of the new hospital is expected to start in 2016 and be completed by 2018-19.
Plans will be finalised over the coming months when the tender race will get underway.
The Trust said: “We expect to appoint a PF2 partner in 2015 and the first construction activity to begin in 2016. Demolition works are currently ongoing at site.”