The new unit will open in August 2009 and will offer help and support to children and young people who are experiencing complex mental health problems such as eating disorders, mood disorders and self-harm.
The current facilities are based at Cedar Court, Colwyn Bay and will be expanded from a five-day inpatient service to one which is available seven days a week in the next few months.
The project has been funded by the Welsh Assembly Government.
The unit will provide a seven-day service, with 24-hour emergency cover and will increase the number of adolescent mental health beds in North Wales to 18, including a six-bed emergency and high dependency ward.
Health Minister Edwina Hart said: "The new facilities will greatly improve the specialist care on offer locally to children and young people experiencing mental health problems."
Dr Clare Lamb, Consultant Child and Adolescent Psychiatrist for North Wales Adolescent Service at Conwy and Denbighshire NHS Trust, based in Colwyn Bay, described the unit as a "very exciting development" and stressed the plans would "significantly improve the services available to young people".
"We are only open five days a week, our building lacks space and it is not suitable to care for the most unwell young people. The result is that many children have to be treated in hospitals far from home in England, making it hard for family and friends to stay in touch. Others are treated on the children's medical wards or adult psychiatric wards across North Wales, where it is not possible to get the treatments they need."
The new facilities will include an on site school, a safe garden and recreational space. The plans will also allow children to be treated closer to their family and friends. Access to Welsh speaking clinicians and teachers will also be available.
Dr Lamb said: "The new inpatient service will have a major positive impact on the quality and range of treatments we can provide to these very vulnerable children. We are looking forward to being able to develop a centre of excellence that meets the mental health needs of our young people here in North Wales."