The deal has been awarded by Cwm Taf University Health Board following approval by the Welsh Government of the Outline Business Case.
Design and survey work has already started with enabling works expected to finish in June 2015 in readiness for the main building works.
The project is expected to take seven years to complete with the hospital remaining fully operational throughout the many stages of redevelopment.
Interserve won the deal under the Welsh Government’s Designed for Life 3 framework.
Works include the replacement of existing mechanical and electrical services, ground and first floor refurbishment, asbestos removal as well as fire protection, infrastructure and car park upgrades.
Facilities will be replaced in operating theatres, radiology, pathology, critical care, pharmacy and outpatient areas, while a helipad will also be relocated.
All existing mechanical and electrical services will be replaced by Interserve Engineering Services.
Andrew Edmonds, Divisional Director of Interserve Construction said: “We are looking forward to working closely and collaboratively with the Health Board and its advisors, together with our local design partners and supply chain to ensure that patients in Merthyr Tydfil and neighbouring areas will benefit from the highest quality healthcare in modern, fit for purpose facilities.”