The State Government has announced plans to restore the site of the old Sunset Hospital in Dalkeith.

The 8.5 ha area of prime waterfront land has been largely vacant for more than 15 years.

The Premier Colin Barnett says all of the heritage listed buildings will be restored and opened up to not for profit groups.

Over $270,000 has been committed to developing a master plan for the site and the government hopes to pay for the rest of the development by selling a 1500 sqm block of land on its edge.

Mr Barnett expects the sale to fetch up to $10 million.

The Mayor of the City of Nedlands, Max Hipkins, is running as an independent in the seat of Nedlands at the March election.

Mr Hipkins says the council is unlikely to take up one of the buildings and he's sceptical the government's plan will ever eventuate.

"From our point of view the site is not well located," he said.

"It's not centrally accessible to the whole city, the public transport access is not very good and so most people going to the site would have to go by car."