The scheme involves developing 223 new homes across 5.6 hectares of land in the Trinity South area of Laygate.
The project area includes the former Circatex factory site as well as the southern half of Frederick Street, between Walpole Street and Reed Street.
Work is now underway to demolish the empty properties at the southern end of Frederick Street to make way for new housing in the Laygate area.
The planned development is designed to integrate the existing retail area with the new neighbourhood.
Pre-demolition works such as rubbish clearance and surveys began in May.
The work will see land cleared ahead of house building starting later this year.
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A new linear park running from Reed Street through the rear of Frederick Street will be built, along two new car parks.
There will also be extensive new car parking around the retained northern half of Frederick Street.
The scheme is being delivered in partnership with South Tyneside Council and the Homes and Communities Agency.
Councillor Ed Malcolm said: "Historically, Frederick Street was a bustling shopping area, but it has been in serious decline for several years.
"We have aspirations to create a more sustainable retail core in the upper part of Frederick Street, Laygate and New Green Street, and we hope that by injecting the area with renewed commercial vitality, it will help it to thrive once again.
"Replacing the run down properties in the southern half of Frederick Street with a quality, vibrant new neighbourhood, will also create fantastic new housing opportunities for residents.
"Clearing the site for new housing is a major step forward in helping us to transform the area and to give the people of Laygate the improvements they deserve."
Ian Prescott, Homes Land and Partnerships Director at Keepmoat, added: "Keepmoat took something of a gamble in commencing the construction of new homes before the area was fully cleared.
"Now that the Frederick Street premises are coming down, the success of our partnership with the Council will be visible for all to see."
(LM)
