The corner of Stag Road in Stornoway is to be transformed by the construction of 12 new homes on the site of the former Stag Bakeries.
Lewis Builders aim to have the properties ready for Hebridean Housing Partnership (HHP) tenants by April 2019.
Eight homes will have two bedrooms while four will be single bedroom properties.
The Scottish Government has awarded £868,000 towards the overall £1.05 million cost.
Katrina Rowlands, HHP’s development manager is “delighted that this development will transform the former bakery site whilst also providing much needed high quality new homes in this area of Stornoway.”
Western Isles Council housing spokesman Kenny John MacLeod said: “As well as helping to meet the demand for housing in the town, the 12 new flats will replace a former commercial building that has lain empty for many years.
“The new homes will have a very positive impact on the Bayhead area and will contribute towards the regeneration of Stornoway.”
Housing Minister Kevin Stewart said: “Scotland’s islands make a huge contribution to Scottish life but we know people living there can face challenges when it comes to accessing the home they want. We have introduced dedicated support through our £5 million Islands Housing Fund, increasing the supply of affordable housing and helping attract and retain people in our islands.”
Last year planning permission was turned down for an application to construct a four-storey block of 45 rooms on the site following concerns over its design, scale, form and large size within the neighbouring conservation area.