The project involves the construction of 23 houses, 20 cottage flats and a bungalow – all for social rent – on the site on which the town’s Campbell Hospital once stood.
Sanctuary Scotland Housing Association will manage all 44 homes, the last of which will be completed next summer.
Councillor Anne Stirling, chair of Aberdeenshire Council’s communities committee, formally marked the start of construction. She said: “It is great to see work beginning on this development. Not only is it bringing new life to the former hospital site, it will deliver additional rental accommodation in north Aberdeenshire that I know will be very welcome.
“These properties very much support the objectives of our strategic housing investment plan and we’re very pleased to be working with Sanctuary Homes once again.”
The £6.1m project was helped to site by a £3.9m Scottish government grant.