Victoria's stand-alone virus quarantine facility will go ahead although the state and federal governments are yet to agree on where it will be built.
Prime Minister Scott Morrison and Acting Victorian Premier James Merlino confirmed on Friday they had signed a memorandum of understanding to develop a new site.
Mr Morrison said the Commonwealth would meet the capital costs of the facility, while the Victorian government would cover operational costs.
"That is a very welcome process that we have been through with the Victorian government. A very good proposal," the prime minister said.
Mr Merlino also said he was very pleased with the agreement and would "get cracking" to deliver it.
A site for the facility still hasn't been decided, with a site at Mickleham, north of Melbourne, the state's first option, while the federal government appears to favour Avalon Airport near Geelong.
"Our preference is Mickleham, we are very happy to have it at the Avalon site as well, it will work equally well there," Mr Merlino said.
He added now the proposal has Commonwealth approval, the Victorian government will try to have the facility built more quickly than the current timeline.
When Victoria first proposed the facility in late April, the final call on construction was to be made in September, with the hope it would be ready by the end of the year.
"Now we have a definitive green light from the Commonwealth ... we'll engage with them in terms of is there any levers we can pull in terms of Commonwealth planning processes to fast track this," Mr Merlino said.
Site investigations have been carried out at both locations.
On Thursday, Treasurer Josh Frydenberg strongly suggested Avalon was the federal government's preferred option.
Victoria had proposed the Commonwealth fund and build the 500-bed facility at a cost of $200 million, while it chipped in $15 million for design and would pay for ongoing operation.
The centre would operate "over and above" the current hotel quarantine system.
Defence Minister Peter Dutton told channel nine on Friday that not even a dedicated quarantine facility could prevent the problems that have emerged in hotel quarantine.
"I think where you've got human beings involved, there is a potential for breach and that's why there's not a fundamental problem at all with the hotel quarantine," he said.
A leak from the hotel quarantine system in South Australia caused Victoria's current outbreak and snap lockdown, the state's fourth.