KING Edward VII Hospital was saved from closure this week in a deal that will see the original 100-year-old building converted into flats, and a new 120 bed hospital built within the grounds.

This means 32 fewer beds at the Midhurst hospital, but staff who have resigned due to the uncertainty of the past few months may be offered their jobs back.

Anxiety has been high at King Edward's since the threat of closure came in January. The hospital went into liquidation following losses of up to £3.2 million for 2001/2 and £2.1 million up to January this year.

Whether existing jobs will be secure depends on the volume of business the hospital can generate.

"We'll see if we can persuade some or all of the dozens who have resigned to change their minds, but we may need to recruit," said Shay Bannon of provisional liquidators BDO Stoy Hayward, at a press conference on Monday.

The Macmillan Cancer Relief hospice will remain on site for the time being, but talks will take place to incorporate the much needed service into the new building.

The hospital will offer some new services, including a neurology department, and will serve both NHS and private patients.

The announcement came on Monday after an agreement was reached with a consortium of hospital, property and construction companies, subject to the completion of legal formalities. The cost of the rescue deal has not been disclosed.

The new building will be two storeys, 80,000 sq ft, and next to the existing cancer centre. It is expected the development will be completed within two to three years.

Speaking after the announcement was made, MP for Chichester Andrew Tyrie told The Herald that he is absolutely delighted with the news.

Mr Tyrie has worked with the campaign to save the hospital since fears were first aroused about its closure. He raised the issue of securing an NHS contract for the hospital in a special debate in the House of Commons where he was supported by 17 other MPs, including the member for South West Surrey Virginia Bottomley.

"I think that the work of staff and campaigners and the tremendous strength of public support for the hospital played a crucial role in securing its future. It has shown that when people get together they can really make a difference," said an enthusiastic Mr Tyrie.

But he added that the deal had yet to be finalised and was subject to the Chichester District Council (CDC) granting planning permission for the proposed development.

Details of the residential side will be revealed in April, when an application is submitted to convert the current Grade II listed building into apartments, and to build more homes in the grounds.

The standard and mix of housing has not yet been confirmed but Mr Bannon said it would be "in keeping with the area".

In the meantime, BDO Stoy Hayward has appointed private hospital group Capio Healthcare UK as interim advisors to keep the hospital running while planning permission is sought.

Capio, which owns 21 acute hospitals in the UK and already treats thousands of NHS patients each year, believes the hospital has the potential to become a centre of excellence for heart and cancer services in West Sussex.

"The King Edward VII Hospital lives to fight another day," Mr Bannon said. "This arrangement combines the management and the operational skills of a large private hospital group with an innovative funding and property development solution."

Mr Bannon said that the old building was placing an unsupportable drain on resources and was falling into disrepair as a result.

"I hope that those who have fought so hard to save the hospital will recognise that the name and tradition of clinical excellence will live on even though the historic buildings will be put to other uses."

The property developers for the project are Lincoln Holdings. YJL Construction, who will build the new hospital buildings and homes.

A spokesman for the consortium said that KEVII would remain a hospital for local people.

"We believe that the NHS will welcome the revival as a fresh resource for patients waiting for elective surgery," the spokesman said.

Macmillan Cancer Relief's company secretary Paul Rossi also welcomed the news that the hospital should continue under the new consortium.

Mr Rossie said: "We are delighted that Capio Healthcare UK are involved. They are a well respected company with a good track record in the UK and overseas. Macmillan Cancer Relief looks forward to working with them to ensure the future of cancer services at Midhurst."