NEW ORLEANS (AP) — An arbitration panel ruled Wednesday that the Federal Emergency Management Agency must pay almost half a billion dollars to replace the hospital that served New Orleans’ poor before it was heavily damaged in Hurricane Katrina.

The decision ended a long-running dispute between the state and the federal agency, which argued that damage to Charity Hospital was not as severe as the state claimed.

The unanimous decision by the three-judge Civilian Board of Contract Appeals ordered FEMA to pay more than $470 million toward rebuilding. That’s only $17 million less than the state was seeking.

‘‘This is a great week in Louisiana!’’ Gov. Bobby Jindal said. ‘‘First, the Saints’ victory and now we finally get the funds we need to replace Charity Hospital after five years of fighting with FEMA.’’

The state and LSU plan to use the settlement to help pay for a 424-bed, $1.2 billion hospital next to a new Veterans Affairs hospital. Jindal said he would appoint a hospital governing board within days and move quickly to sell bonds for the project, to be paid from hospital revenues.

Jindal said construction to replace the historic hospital in the city’s business district could begin by the end of the year and be completed by the end of 2013. Louisiana State University spokesman Charles Zewe said the planned timeline has groundbreaking set for this August with project completion by December 2013.

As the city’s teaching hospital, the new hospital’s governing board will include people appointed by Tulane University as well as by LSU and Jindal.

‘‘The decision by the Appeals Board will allow all the partners in the new University Medical Center to move forward in planning for the future of health care in New Orleans and the region,’’ Tulane President Scott Cowen said.

Preservationists want the art deco skyscraper built in 1938 gutted and renovated.

‘‘We have serious doubts about that timeline’’ to begin this year, said Sandra Stokes, vice chairman of the Foundation for Historical Louisiana. ‘‘There’s a lot of suits and issues pending and they don’t have financing.’’

She said the state hasn’t begun demolition or even finished buying land. ‘‘They’re years away from completing that. We know we can be inside Charity with a state-of-the-art hospital in three years.’’

Jindal said the building won’t be torn down and the state has appropriated $40 million to renovate it.

‘‘There needs to be a new use for the building. It’s a historic building,’’ he said.

FEMA had estimated damage at $124 million and offered $150 million as a settlement. But judges on the panel said they weren’t convinced by testimony from FEMA’s experts on the extent of the damage.

‘‘We are committed to honoring this important resolution and we look forward to continuing to work with state and local leadership to help the Gulf Coast rebuild,’’ FEMA spokesman Clark Stevens said.

At least some of FEMA’s information was incomplete, and the agency’s witnesses didn’t have evidence to back up their doubts about whether some damages were caused by the storm.

As an example, the judgment noted that toxic wastes filled pipes for drinking water, but nobody knew just how many floors up that contamination went. Original construction drawings were lost in the flood, so ‘‘the number and location of dead ends was unknown.’’

BKA’s engineers found that all the pipes would have to be replaced, but FEMA’s thought it was possible that pipes on upper floors might be usable. However, the judges said, those witnesses didn’t know how many floors might have usable piping nor could they say whether flushing the system would render it clean.

Katrina struck Aug. 29, 2005, smashing levees and flooding 80 percent of New Orleans. The hospital, known historically as Charity Hospital, suffered flooding and wind damage. It did not reopen after the storm though its operator, LSU, opened what it has called an interim hospital at a nearby location.

In the stimulus bill, Congress authorized the creation of the arbitration system for disputes with FEMA over infrastructure projects related to hurricanes Katrina and Rita, a provision pushed by U.S. Sen. Mary Landrieu, D-New Orleans. On Wednesday, Landrieu praised the outcome of the arbitration.

‘‘It’s just tremendous news. It’s our own stimulus package if you will, and a robust one at that,’’ Landrieu said. ‘‘It is the cornerstone of building a new, modern, cutting-edge medical research complex focused on patient care.’’