A new three-storied building with a floor area of 7,500 square metres will be built to house an obstetric gynaecology operation theatre, paediatric intensive care unit and outdoor patients department.
"Improved facilities will provide better access to specialised healthcare services to minimise difficulties faced by patients who travel long distances to obtain such services," the ministry said in a statement.
Over 1.3 million people in Anuradhapura and surrounding districts where health care facilities are inadequate will benefit from the project.
Inadequate facilities in many of the island's rural hospitals mean patients must often travel to Colombo to get treatment.
The ministry statement also said 1.3 billion yen from the Japanese grant would be used to import goods and materials for development projects.
Part of the value