The hospital could now house office space or court facilities.

Carmarthenshire council bid �3m for St David's Hospital to prevent it from being used to process and house asylum seekers.

The site's rambling buildings once housed 1,200 patients but the remaining 100 or so patients will be moved to a new psychiatric unit being built on the property.

Carmarthenshire councillors meet on Wednesday to discuss plans for the site's redevelopment - they include a multi-million pound proposal to build a new law court to serve most of the county as well as an option to create office space.

We were very concerned about what could have happened at this important site for Carmarthen Chief executive Mark James

Built in the 1860s, the Grade II listed building is set in about 100 acres of land on the north west side of Carmarthen.

For more than a century the hospital, run by the Pembrokeshire and Derwen NHS Trust, has been used to treat patients with mental health problems.

But new facilities, including the planned psychiatric unit and an extension at Llanelli's Prince Philip Hospital, mean most of the site can be given over to other uses.

There had been widespread speculation that the Home Office was preparing a bid to acquire the building so it could be used as a youth correction centre or to house asylum seekers.

This prompted council leaders to hold talks with assembly officials.

Listed building

Carmarthenshire's executive board members agreed to put in a bid last year.

Council leader Meryl Gravell says St David's Hospital is one of the most important development sites in the area.

"I am delighted that the council has been successful in securing this important site," she said.

"We decided to bid for it because we wanted to make sure that any development would benefit the community.

"We have been encouraged by the support from local people who were concerned about what it might be used for.

"We will now look forward to see how the site will be used for the future."

Sully Hospital

Carmarthenshire's chief executive Mark James said: "We put forward a sound business case to the assembly and we are pleased with the decision.

"We were very concerned about what could have happened at this important site for Carmarthen.

"St David's is one of the best development sites in the area and we will be looking at a number of appropriate public uses."

The row about St David's Hospital followed controversy about another former psychiatric hospital near Barry in south Wales.

Residents near the Grade II listed site at Sully in the Vale of Glamorgan staged protests ahead of a government decision which eventually shelved plans to house up to 750 people there.