Redevelopment work at the old Noble's Hospital site in Douglas on the Isle of Man could be started in 2009.
Mike Harrington, director of estate services for the department of health, said the former Jane Crookall Wing would be kept by the Health Service.
The rest of the site will be levelled to create a new building to replace Fairfield and Ballacloan schools.
The school improvement proposals include building new sports facilities and car parking.
Mr Harrington added that the department of education felt very strongly that the schools needed to be modernised.
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