The facility will be built on the current site of the hospital at Rochestown Avenue in Dún Laoghaire, Co Dublin. A hospital facility has been at that site since 1918.
Planning permission was granted by An Bord Pleanála earlier this year.
The hospital was the first major healthcare project to be granted planning approval through the fast-track Strategic Infrastructural Development process.
The development, a partnership between the HSE and the hospital foundation, will see the existing wards replaced by a new facility that includes integrated therapy services for patients requiring complex ehabilitation.
The new hospital is expected to be ready in 2017, but services will continue at the existing level while the development is ongoing.
According to local Labour TD Eamon Gilmore, there had been “a need for a long period of time” to develop a new rehab facility.
“The hospital recently secured planning permission for the new development,” Mr Gilmore said. “There was, however, a shortfall in the original estimate for the work.
“The €15 million allocated funds will bridge that shortfall and will enable the HSE and the hospital to proceed with the work.”