The provincial government wants to move historic Somerset Hospital from Green Point to the northern sector of the metropole, where it will service the densely populated West Coast region.
Public Works and Health MECs Robin Carlisle and Theuns Botha confirmed that they were working on plans, which were still at "a very early" stage, to build a hospital in the Dunoon area.
Botha said they were considering renting out the Somerset Hospital property and would use the operational budget to build a hospital to service the Dunoon, Atlantis and Malmesbury areas.
A suitable site in the Dunoon area had been identified - in a residential area and close to a taxi rank - but Botha declined to give further details.
"It is still in very early stages... (these are) still informal discussions," he said.
Botha agreed that Somerset Hospital had "huge sentiment, huge heritage" as the oldest hospital in the country, but could not say what would happen to the extremely valuable site after the move.
Carlisle was, however, confident that the site would not be sold. He said that once the hospital had moved, which would probably be more than a year from now, the site would be used as part of the city's regeneration plans.
He also said many of the "old ugly buildings" around the hospital precinct would be demolished in the next 80 days to improve the aesthetics of the area before the World Cup kick-off.
The province recently signed a lease with Britain's public broadcaster, the BBC, to build a studio on the roof of the historic hospital to broadcast the World Cup.
Another reason for moving the hospital was that the City Bowl, Green Point and Waterfront areas were served by private hospitals, while there was an urgent and immediate need for a public hospital on the West Coast, Carlisle explained.
The BBC's temporary roof-top facility will have uninterrupted views of the stadium, Table Mountain, the Waterfront, Table Bay and Robben Island.
"We are very pleased with that; it means at least one of the international broadcasters will be based here ... and the Cape will get more footage," Carlisle said.
The provincial government is also building a R40 million special unit at Somerset Hospital which will be used as a quick treatment centre for players or in the event of a disaster during the World Cup.
The hospital precinct is valued at more than R1 billion, and has been mired in controversy over development plans linked to alleged backroom deals and nepotism.
It was put out for tender by the ANC administration of former premier Ebrahim Rasool.
Rasool was accused by the DA opposition of favouring Waterfront developers Dubai World for the lucrative tender and it was reported that this group had offered R1.1bn for the site. Rasool denied the allegations.
In December 2008, his sucessor Lynne Brown, halted the tender processes and launched an investigation.
Last week, about 50 people who had been living in the Old City Hospital's G block set up home on the pavement after being evicted in terms of a court order.