Moves to convert a historic former hospital into homes, shops and leisure facilities have taken another step forward.

A Chichester District Council planning committee met yesterday to discuss an application for the old King Edward VII Hospital in Midhurst.

The Grade II* listed site is in an area of outstanding natural beauty and includes historic gardens created by pioneering landscaper Gertrude Jekyll.

The private hospital, which also dealt with hundreds of NHS patients from across West Sussex and parts of Hampshire and Surrey, closed a year ago.

Developers want to create 224 homes by converting the listed buildings and building a further 38 flats within a new wing.

Thirty-two of these flats will be affordable housing.

There are also plans for a new on-site shop together with new indoor and outdoor leisure facilities, a business area and restored and protected gardens and grounds.

Planners today agreed to defer a decision until a legal agreement is reached over how facilities such as road safety measures and public transport are provided - but said they would confirm the deal once those details are in place.

The hospital went into provisional liquidation at the end of 2001 after debts spiralled to more than £8 million.

Tens of thousands of people signed a petition to save the hospital and the subject was brought up in Parliament because of fears the closure would lead to longer waiting times for NHS patients.

A rescue package was drawn up by developers Lincoln Holdings and the healthcare company Capio which would have included a new hospital houses but this fell through in 2006 after they could not agree on how to take the plans for the site forward.

Around 300 jobs were lost and patients had to go elsewhere for treatment.