Kiama councillors last week endorsed the latest concept design for the $55 million aged care project at the site.

The council will buy the 3.3-hectare site from the Illawarra Shoalhaven Local Health District and build a new nursing home and hostel for the council's Blue Haven Aged Care Facility. This will replace the Havilah Place nursing home/hostel.

The hospital received an $8 million grant from the Restart NSW Illawarra Infrastructure Fund to upgrade it into a "centre of aged care excellence".

All buildings on the hospital site will be demolished, except for heritage-listed Barroul House. The project will include restoration and refurbishment of Barroul House.

The Health District will also provide improved community and out-patient health services from the facility.

The hospital's existing 20-bed inpatient unit, which offers rehabilitation to aged care patients, will initially be relocated to Port Kembla, then later to the redeveloped Shellharbour Hospital.

Kiama Hospital Auxiliary secretary Julie Stokes believed it had not been properly publicised that the plans would result in the closure of wards.

She said a perceived lack of consultation regarding plans for the hospital's inpatient services was concerning.

"What we'd like to see is a reversion to the original plan, which was to retain the hospital beds on-site, alongside the redevelopment of the aged care facility," she said.

"It's the two-stage movement that we object to.

"Port Kembla is not in our local area, and it's not easy to get to by public transport for older people.

"We'd just like to see more community consultation. There hasn't been any sp far about the closure of the wards."

The development will allow Blue Haven to activate an additional 52 licences.

The overall project will also feature 52 assisted living units and 20 independent living units developed.

Eight residential lots at the rear of the property will be sold to help fund it.

Ms Stokes had concerns for surrounding areas such as Gerringong and Jamberoo.

"We'd like to see hospital beds retained here, until such time as extensions at Shellharbour Hospital are completed, and nobody knows when that's going to be.

"But do community members realise that this welcome addition to local services will also mean the end of Kiama Hospital as we know it?

"The Kiama community vigorously campaigned in the 1990s to retain our hospital service after it was closed for six years.

"Are you willing to now accept its closure for good?"

A council spokeswoman said the decision to relocate the Kiama Hospital sub-acute inpatient beds to Shellharbour Hospital was made by the ISLHD.

"In 2012, the ISLHD publicised the relocation of Kiama's hospital beds in its Health Care Services Plan 2012-22.

"The ISLHD conducted public consultation during the development of the plan.

"Council understands the decision by ISLHD was made on the basis that 24-hour medical care is not available at Kiama Hospital and that this need would be better served at Shellharbour Hospital."

The spokeswoman said while the decision to reallocate hospital beds to Shellharbour Hospital was made by the ISLHD, the council expected positive outcomes.

"The proposal will allow ISLHD day services to remain on-site. These include dental, adult counselling, occupational therapy, and physiotherapy services, and diabetes, audiology, early childhood, podiatry, and speech pathology clinics.

"The proposed redevelopment also includes the provision of respite beds to aged care patients."

Extended story at kiamaindependent.com.au