Permission to redevelop the site - which opened in the mid-19th century, but closed in 2012 - was granted earlier this year.
As part of the plans, Wakefield Grammar School Foundation has been granted permission to demolish large parts of the former hospital structure.
It will then be redeveloped into sports facilities for students at Queen Elizabeth Grammar School and Wakefield Girls' High School.
However, the hospital's pavilion building will be restored and refurbished, and form part of the new site.
Since its closure, Clayton Hospital has been subject to vandalism, decay and even unauthorised ghost hunts.
The redevelopment plans were backed by Wakefield Civic Society, and approved by Wakefield Council in April.
Speaking at the time, civic society president Kevin Trickett said the plans were an "acceptable compromise" given the retention of the pavilion building.
It had been concluded that restoring all of the old structures would be too complex and expensive a job.
Mr Trickett said: "The Covid pandemic and the delays that's caused in the planning process has left that site empty for much longer than it should have been.
"Fingers crossed something will happen soon. When you're driving down Northgate from the Leeds-Bradford end and you go past the site you can see that it's been derelict for far too long.
"There's a strong argument to say that with heritage buildings, there should be a plan put in place for their future, before their owners vacate it and leave it empty."