Liverpool City Council has bought the freehold of the derelict Royal Insurance building on North John Street off local property investor Highneal for £1.95m.
The council said it will now work with Runcorn-based developer Ashall Property to create an £18m hotel.
Glasgow-based hotel franchisee BDL Management will operate the hotel under the Aloft brand, licensed from US group Starwood.
The hotel will have 116 rooms, a café and gym as well as business meeting rooms.
The grade 2*-listed building has been unoccupied for 20 years and is on the national Buildings at Risk Register.
Ashall Property aims to start on site next month and complete the redevelopment in late 2014.
The conversion has been designed by Falconer Chester Hall. Balfour Beatty is the main contractor. English Heritage are supporting the scheme with a grant of £297,500.