Housing group Link is working on the refurbishment of tenements at 13 – 15 Kirkwood Street, Rutherglen.
This phase will amalgamate 42 flats into 32 new flats and is due to be completed in July 2013.
Link Group says the original flats are small, difficult to heat and poorly configured.
The new properties will have efficient gas central heating and improved internal layouts.
ASSIST Architects have provided the designs, which will be developed by CCG (Scotland) Ltd.
The first phase has already been finished and involved the amalgamation of 33 flats into 24 new flats.
Traditional sandstone tenements at 15, 23 and 25 Kirkwood Street were reconfigured to increase their size.
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Each flat has gas central heating, hot water systems and double glazing.
The back garden area was redesigned to create more space for residents.
The work is part of a Comprehensive Tenement Improvement Scheme (CTI) approved by South Lanarkshire Council.
£2,240,000 funding was secured from the Scottish Government.
Craig Sanderson, Chief Executive of Link Group, said: "These flats had become unfit for 21st Century purpose, having been rehabilitated in the early 1970s by World Property Housing Trust – which became Gap HA, which itself merged with Link in 2000. We are delighted that the Scottish Government and South Lanarkshire Council have both supported this essential re-development."
Housing Minister Margaret Burgess said: "The Scottish Government has invested over £2m to help the Link Group deliver 56 high quality homes in Rutherglen. This is good news for local families who have been given access to much-needed affordable homes."
Leader of South Lanarkshire Council, Councillor Eddie McAvoy, added: "The flats are a key feature in the streetscape of Rutherglen town centre. The refurbishment has successfully remodelled the interior flats whilst retaining and preserving the character of this high profile building."
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