"The Project envisages construction of a four-storey ward complex to improve the existing infrastructure of the Hospital to meet the growing demand for better treatment facilities," the high commission said in a statement.
"The construction of the 200-bed ward complex at Vavuniya will cater to the medical care needs of in-patients admitted to the Hospital from Vavuniya and adjoining districts."
Wahid Constructions was given the contract to build the wards by February 2014.
India had given medical equipment costing 230 million rupees to hospitals in Jaffna, Kilinochchi and Mullaitivu.
India is also building a 1.2 billion rupee 150 bed hospital in Dickoya in Central Sri Lanka which is expected to be complete by April 2012. The high commission said India will also gift a telecobalt radiotherapy machine to the Hambantota hospital.