Thousands of campaigners breathed a sigh of relief today after the threatened King Edward VII Hospital in Midhurst was saved.

A consortium of hospital, property and construction companies has come up with a deal that will keep the King Edward open.

The plan is to create a new state-of-the-art hospital in the grounds of King Edward VII and convert the existing building into flats.

Campaigners have welcomed news the hospital was safe but are sorry the Grade II building will not form part of future plans.

The private hospital went into provisional liquidation just before Christmas after going millions of pounds into debt.

It treats thousands of patients every year from West Sussex and parts of East Sussex, Surrey and Hampshire.

About half of the patients are referred by NHS hospitals but the number has been falling over recent years, causing the hospital serious financial problems.

Private hospital group Capio Healthcare UK, which owns 21 acute hospitals, believes King Edward VII has the potential to become a centre of excellence for heart and cancer services serving NHS and private patients.

Provisional liquidator, BDO Stoy Hayward, has appointed Capio as advisers to run the hospital while planning permission is sought from Chichester District Council for redevelopment.

Planners will be asked to allow the main building, a former TB sanatorium, to be converted into apartments and agree to more homes in the grounds.

The hospital has a reputation for excellence in cardiology, oncology and hip and knee replacements but its buildings are old-fashioned.

Liquidator Shay Bannon said: "This arrangement combines the management and operational skills of a large private hospital group with an innovative funding and property development solution.

"The old building was placing an unsupportable drain on resources and was falling into disrepair"

The King Edward employs 350 staff and treats 6,500 inpatients and 20,000 outpatients each year.

Campaigner James Foster said : "It is a pity the main building will be lost and I know some people who won't be happy about it. But if it means we keep hospital services, that can only be a good thing."

The consortium will reveal details of the scheme after contracts are signed and when it unveils a planning application in April.