Despite being a public facility, the hospital is owned by the council and run by Waitaki District Health Services Ltd (WDHSL).
The country's disconnect from the national healthcare system has led to clinical and financial instability in recent years.
Councilors today approved agreements negotiated with Health New Zealand Te Whatu Ora (HNZ) to return staff and services to the government from July 1.
As part of the deal, Health NZ will purchase WDHSL's clinical equipment and supplies and assume licenses, equipment operating leases and service agreements. It will also lease the Oamaru Hospital facility from WDHSL, the council said in a statement.
“Today marks a bittersweet change for our community as we confirm the conditional agreement with Health NZ to take back our Oamaru Hospital,” Waitaki Mayor Gary Kircher said.
'It has been part of council life since the late 1990s and has had its highs and lows. However, we have had to accept that this is the right time to bring it back under HNZ's control…'
Last year, the hospital closed its emergency department three times due to staff shortages.
The hospital could have stabilized the number of nurses by achieving pay parity last year, but finding doctors was a major problem.