Housing Minister Margaret Burgess has visited the Baltic Mill project site in Angus.
The project will turn the area into a site for affordable homes, commercial and community space.
Phase one of the project by local company Dens Road started in February 2015.
It involves the delivery of commercial, retail and community space, including business start-up units.
Phase two will develop 36 affordable housing units for mid-market rent by converting the grade A listed Baltic Mill into apartments with new purpose built flats behind.
The old original chimney will be retained as a landmark.
Work will cost approximately £5 million with over £1 million funding from Angus Council's survive and thrive programme, along with £800,000 from Scottish Government's Regeneration Capital Grant fund.
Donald Morrison, the council's housing spokesperson, said: "This site is in a key town centre location in Arbroath and these works will greatly contribute to the on-going regeneration of Arbroath.
"There is a real need for more affordable housing in Arbroath and this new development will help alleviate this demand."
Speaking of her visit, Minister Burgess said: "Angus Council, backed by £800,000 from the Scottish Government’s Regeneration Capital Grant Fund , is to be congratulated for spearheading the £5 million regeneration of Baltic Mill, an iconic Arbroath landmark.
"The development will breathe new life into the A-listed building by providing affordable space for local businesses and social enterprises, creating job opportunities that will benefit the local community."
A spokesperson for Dens Road Ltd said: "We are very pleased to be working on such an important project with Angus Council and the Scottish Government to provide much needed regeneration and quality affordable housing in Arbroath."
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