A new trades training centre will be built at Otago Polytechnic in Dunedin.
The government has announced $28 million in grants and loans for the $31.7 million project at the polytechnic's Forth Street campus.
Infrastructure Minister Shane Jones said the three-storey building would allow more students to train in building and construction, in specialist and fit-for-purpose facilities.
Otago Polytechnic is a subsidiary of New Zealand Institute of Skills and Technology, which currently teaches trades programmes in leased, pre-fab buildings.
The funding comes from the government's $3 billion infrastructure package, in the Covid-19 Response and Recovery Fund.
Jones said the construction industry desperately needed well-trained workers for the government's "pipeline of infrastructure".
The new centre will also accommodate plumbing, drain-laying and gas-fitting training programmes.
Education Minister Chris Hipkins said the project was significant to the region and the wider construction industry.
"Otago Polytechnic is a major training provider for the construction trades - both regionally and nationally - and will help the sector rebuild skills and recover from the economic impacts of the Covid-19 pandemic and lock-down," he said.
It is hoped the project will create up to 200 jobs during construction and put money into the pockets of local businesses, suppliers and workers.
Otago Polytechnic said construction activity could begin within months, subject to consent and approval, and be complete by mid 2022.
It is pledging to resource the project largely with local tradespersons and companies, and source construction materials from a national supplier.
Chief executive Megan Gibbons said the polytechnic's role would be two-fold in coming years.
"As we contribute to vocational education in New Zealand, we also acknowledge we have a part to play in the economic recovery," she said.