A developer has purchased the former site of the derelict Devonport maternity hospital, with the State Government pushing for it to be used for affordable housing.

The buildings sat empty and were heavily vandalised for more than 20 years, until the site was purchased by Devonport City Council last year.

The Government contributed $950,000 towards the demolition of the building and the remediation of the site in February.

On Wednesday, the Government announced Devonport firm KCB Developments had won a $667,000 tender to develop the site.

"We've got great hopes that this will be a very substantial development indeed," the Parliamentary Secretary to the Premier, Rene Hidding, said.

He said the company had been chosen with the hope the site would be used for affordable housing.

Peter Cross from KCB Developments said the company would likely be looking to build units on the site.

The site was sold for $283,000 less than the council paid for it. ( ABC News: Manika Dadson )

"It needs to be aesthetically pleasing, and not like the old hospital," Mr Cross said.

He said the timeline for the project was "as soon as we can," and that a development application would be lodged before the end of the year.

Devonport's Acting Mayor Annette Rockliff said she was pleased the uncertainty about the site was now over.

"It's not really been able to achieve anything, despite at least two or three purchases and sales, and it's remained here and continued to deteriorate and continue to be an eyesore for our community," she said.

There were fears children played in asbestos inside the derelict hospital. ( ABC News )

"We're already seeing a large improvement in private development and sales [in Devonport] and we see this as part of our overall plan to enhance and grow our city."

Ms Rockliff said she anticipated complaints about the fact the site had been sold for $283,000 less than what the council paid.

"We always understood that we wouldn't recoup all of the costs involved, and also obviously State Government understood that as well," she said.

"Certainly once it's developed, we will have an ongoing income from this development, rather than an ongoing cost."