Member for Western Victoria Gayle Tierney said the "exciting" extension of funding for South West Healthcare's Merindah Lodge would help the proposal finally get under way.

"It's exciting for Camperdown to be offered this opportunity," she said.

"To be recognised that we play an important part in the care of older people and the care of the community and to be able to provide a facility like this is really important for Corangamite Shire and Camperdown in particular."

The funds are a part of the state government's $146 million investment into public sector residential aged care.

The 36-bed facility will ensure residents have separate rooms and bathrooms, allowing anyone with varying levels of care including people who have severe dementia to progress in the same facility without having to move out.

"Internally, it means people won't be sharing rooms and bathrooms," Ms Tierney said.

"They'll be having individual rooms and en suites and there'll be specialist care models to care for dementia.

"This will be a new era for aged care and a world-class aged care facility. It will ensure we have respect and dignity for older citizens in Camperdown and the surrounding region.

"We're pretty excited and the team here have been working on this proposal for some time, it brings together a lot of work and dedication."

South West Healthcare executive director redevelopment and infrastructure Jamie Brennan said it was a game-changer for the health provider.

"It's a complete game-changer for SWH, we've got a current facility built in 1976 comprised mostly of double rooms and en suites," he said.

"We've got people in undersized rooms next to each other and people they don't know - that impacts on their privacy and dignity and also impacts on how staff can deliver care - we can't get lifters or hoists into rooms, or wheelchairs into rooms or en suites.

"So it not only provides dignity, care and respect for older residents of Camperdown and Corangamite Shire but also makes it easier for our staff to deliver care on a day-to-day basis.

"It's a complete game-changer..."

Corangamite Shire mayor Ruth Gstrein said it was fantastic news.

"It's absolutely fantastic," Cr Gstrein said.

"You really need to have fit for purpose facilities for our older people and South West Healthcare have been pushing this project for a number of years so I'm thrilled to see it's finally being realised."

South West Healthcare chief executive officer Craig Fraser said it would benefit the entire shire.

"Today's announcement is fantastic news, not just for our Camperdown team but for the whole Corangamite community," he said.

"This funding will deliver a beautiful, brand new home for our residents and transform our aged care facility from one of the oldest in the state to one that is an example of best practice.

"Our staff and residents are thrilled."

He said the new facility would incorporate multiple services.

"The construction of the building in Camperdown will increase access to high quality, purpose designed and built aged care accommodation that meets our residents' needs, whilst focusing on providing contemporary, best practice care," he said.

"The new facility will include a new residential aged care building co-located on the same site with the existing Camperdown Hospital, consisting of 36 single aged care bedrooms, each with an ensuite, across two levels.

"It will incorporate dementia friendly principles and there will be multiple resident and family living areas and dining areas, including discreet quiet indoor and outdoor spaces and dedicated activity areas. Resident amenities will include a café, hairdresser, gym, multiple community areas and a reflection space.

"The design will support our hardworking, dedicated aged care nurses and staff, our GPs and our support staff to deliver the best possible care to our Camperdown and surrounding communities."

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