It has bought a site at 44 London St that it plans to transform into an outdoor gathering space for Lyttelton residents.
"Lyttelton does not have a public gathering place for community activities. It is wonderful that we have seized this opportunity so quickly after the adoption of the Lyttelton master plan,'' Cr Claudia Reid said.
''I have no doubt that Lyttelton's new civic square will become the town's pulsating heart.''
Under the council's recently adopted master plan for Lyttelton, the London St site will become the new home for the Lyttelton War Memorial Cenotaph.
It will also have a children's playground and open spaces where people can socialise.
The council used money from a $2 million fund it had set aside for strategic land purchases to buy the site, which adjoins other council land.