Footscray Hospital will be rebuilt from scratch on the back of a $50 million funding allocation in the state budget.

A hard-fought community campaign to rebuild the dilapidated hospital is finally bearing fruit as the government concedes the existing hospital is well past its use-by-date.

The 2017/18 state budget is providing $50 million to develop a business case and commence design work for the construction of the new hospital, as well as exploring options for suitable nearby sites and purchasing land if required.

Urgent works will also be carried out on the existing hospital, built in the 1950s.

The $50 million allocation comes after $17 million was provided in last year’s budget to renovate three wards and plan future redevelopment works.

A briefing document prepared for the state government in 2014 warned that more than $300 million needed to be spent at the hospital to keep up with growing demand.

A report by independent advisory body Infrastructure Victoria found the rundown hospital should be refurbished or rebuilt within 15 years.

Health Minister Jill Hennessy said the existing hospital no longer meets the needs of a rapidly growing community.

She noted it has some of the oldest inpatient ward accommodation in Victoria and the only metropolitan emergency department not to have been substantively renovated in the last 20 years.

“Families in Melbourne’s inner-west need and deserve a new, fit for purpose, world-class hospital – and that’s exactly what we’ll deliver,” she said.

“The business case will identify the best way to deliver a new hospital for Footscray – either a rebuild from the ground up on the existing site, or on a new location.”

Ms Hennessy said Melbourne’s west is one of the fastest growing areas in Australia and the healthcare needs of the community are only going to continue to grow as the population expands.

Footscray MP Marsha Thomson welcomed the funding windfall.

“I know how important this is to our local community – it’s why I’ve worked so hard to secure this commitment, so we can finally have the new hospital we deserve.”

Maribyrnong Council and Greens MP Colleen Hartland have campaigned heavily on the need for a new or upgraded hospital for Footscray.

Ms Hartland said the announcement is a massive win for the community.

“After years of campaigning, I’m so pleased Footscray Hospital is finally getting the attention it needs,” she said Colleen Hartland.

“This rebuild is well overdue – you can’t deliver 21st century healthcare in a 1950s hospital. But I’m just so happy that inner west residents will finally get the hospital they deserve.”

Hospital operator Western Health said the announcement marks an incredible turning point for Melbourne’s west.

Board chair Bronwyn Pike said rebuilding Footscray Hospital has long been a top priority for the community.

“Melbourne’s west is an area of great need. It’s one of the fastest growth areas in Australia, and has some of the highest rates of cancer, heart disease, stroke and mental illness in Victoria.

“Footscray Hospital has been at the heart of our community for 60 years, and so we are thrilled that it will soon become the world-class, modern facility that our patients deserve.”