Ageing classrooms dating back to the 1950's will be replaced at Warrnambool Primary School.
A brand new permanent building will replace Block D after it was discovered to contain asbestos.
Principal Peter Auchettl said the old building was established in 1956 and relocated in the early 70's.
"It used to be a fibro-building, but it was later moved on the school property and bricked in," he said.
"Most of the cladding is asbestos, hence one of the reasons for it to be removed".
Warrnambool Primary is one of 21 schools in Victoria to receive a new building as part of the Labor Government's Asbestos Removal Program.
Minister for Education James Merlino said the Victorian School Building Authority will meet with the successful schools over the coming weeks.
"There’s nothing more important than the health and safety of our kids and we are getting on with the job of ridding schools across the state of harmful asbestos," he said.
"We’re giving Warrnambool Primary School a brand new building so our kids have the safe, modern facilities they deserve".
Mr Auchettl said the modular building structure should be completed by May next year.
"The school community will have an input into the design and function of the building. Gone are the days when you just build classroom next to classroom next to classroom and we now have the opportunity to create more open space and more flexible learning spaces".
The new building will be built offsite to avoid teaching interruptions.
"Most of our portables have now been replaced when the Building the Education Revolution was rolled out by the federal government in 2011," Mr Auchettl said.
"This new funding will be a great opportunity for our children to undertake their learning in up-to-date and modern facilities. We are also hoping that it will be accessed and utilised by the community".