Rydges Rotorua's 134 rooms will be shut to the public and repurposed for managed isolation from Monday.
The Fenton St hotel will operate "solely for returning travellers entering mandatory 14-day isolation" and operate under the Ministry of Health's director, general manager Vinicius Belotti confirmed to the Rotorua Daily Post.
It is the third Rotorua hotel to take in isolating New Zealanders returning home after the Rotorua Sudima and Ibis hotels began last month.
New Zealand's only new case of Covid-19 yesterdaywas a man in his 30s who arrived in New Zealand on July 10 from Pakistan via Dubai.
He tested positive in the Sudima Hotel in Rotorua but was then transferred to quarantine in the Jet Park Hotel in Auckland, just as previous cases in Rotorua hotels were.
That brought the number of active cases in New Zealand to 21
The Government's Covid-19 response team issued a statement yesterday saying it worked with iwi, the council and the hotel to co-ordinate the opening of the new Rydges isolation facility.
"Staff have been trained on proper use of personal protective equipment and will follow stringent health and safety measures to keep our community safe, along with other security measures including fencing, and on-site police and security staff."
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Rotorua MP Todd McClay said New Zealanders had the right to come home but the Government needed to ensure that the managed isolation system was working properly.
"I just don't think we are hearing enough about that," he said.
"We continue to hear about people being able to get out ... It would be devastating if the same thing happened here in Rotorua."
However, Rotorua mayor Steve Chadwick said she had been assured by both Health Minister Megan Woods and Defence Force personnel "the managed isolation facilities in Rotorua are being operated in a way that protects the health and wellbeing of our community, of the hotel staff ... and of those New Zealanders currently going through the isolation process".
"To date, we haven't been made aware of any issues arising within the facilities in Rotorua, nor has there been any reoccurrence of community transmission nationally, which gives me confidence that all measures are being taken."
Last week, the Government's Covid-19 response team told the Rotorua Daily Post the rates paid to each managed isolation hotel were "commercially sensitive and will not be disclosed".
"The Government has announced there is a $298 million budget for quarantine and managed isolation facilities up to the end of the year.