The Western Australian government has appointed a building contractor to construct a $1.2 billion hospital for children.

Australian construction company John Holland will be the managing contractor under the government's New Children’s Hospital Project.

Replacing the Princess Margaret Hospital for Children in Subiaco, the renewed paediatric hospital will be built on the Queen Elizabeth II Medical Centre site.

Treasurer Christian Porter said John Holland was “well placed” to design and build the paediatric hospital because of its experience in management and delivery of major in major infrastructure projects.

“The appointment of the managing contractor is a key milestone in the delivery of the new hospital and the project is on target for construction to commence in early 2012,” Mr Porter said.

A paediatric research and education facility will be integrated into the hospital, housing the Telethon Institute for Child Health Research (TICHR) and research programs from the University of WA, Curtin University and Princess Margaret Hospital.

“To assist the relocation of TICHR, the State Government has allocated $65 million towards the facility; the Federal Government will also be contributing $40 million director to directly to TICHR to assist with the establishment of the new facility,” Health Minister Kim Hames said.

Ms Hames said the centralisation of these services will facilitate the delivery of a collaborative and “streamlined” advanced-level health care service.

The hospital is due for completion in late 2015.