The hospital is riddled with asbestos and Assembly Health Minister Edwina Hart believes this the most cost effective way of solving the problem
The cost of rebuilding the 30 year old hospital is estimated at up to £300 million and a planning team has been set up to look at how the massive operation can be achieved with a limited amount of disruption.
The project would take five years and it is expected that the hospital's car park will be moved to make way for the new premises around a new green central area.
Vale of Clwyd AM Ann Jones, who has called for revamped facilities for several years, said it was "tremendous news."
She said: "It will push the health service forward and we will see a first class health service provided that is fit for the 21st century.
A spokeswoman for Conwy and Denbighshire NHS Trust said a formal planning team has been set up to look at the redevelopment and the hospital is implementing more fire-safety measures to maintain safety standards in the short term.
She added: "The Trust is delighted with the Minister's announcement to give the go-ahead for the redevelopment of Glan Clwyd Hospital. We are keen to engage with all health bodies in North Wales and other organisations to plan for this major redevelopment."
As well as providing modern facilities, Vale of Clwyd MP Chris Ruane believes the new hospital will act as a major jobs boost and investment for the region.
He said: "I would like to thank Edwina Hart and the Welsh Assembly for this massive investment, the biggest ever seen in the Vale of Clwyd. I am convinced this will create many jobs and I will be doing all I can to ensure they go to local people."