The historic buildings, part of the original 1922 hospital will be demolished to allow for the development of a modern health facility.

After the site is cleared, the main construction of the 8.3 million dollars Canowindra HealthOne facility will begin by September and is expected to be completed by late 2026.

Minister for Regional Health, Ryan Park said the new facility will improve care for patients in Canowindra and surrounding areas.

"With GPs and community services located on the hospital site, it will create a more seamless transition as they move between different healthcare settings," Mr Park said.

The nurses' quarters are over one-hundred years old and as part of the redevelopment, the NSW Government is creating a historical record to "ensure history of the demolished buildings is not lost".

Western NSW Local Health District director of corporate services Jeff Morrissey said those involved in the development have consulted with community groups to ensure the construction meets their needs.

"The nurse's quarters have played a monumental role over the years and while it is necessary for these buildings to be demolished, we recognise their importance in the community."

Member for Orange, Phil Donato said the redevelopment "will make a huge difference to our community".

"This exciting project will bring a range of healthcare providers together in the same place and improve access to health services for the community and surrounding areas," Mr Donato said.