Montagu Evans yesterday put the former Milton hospital on the market, inviting closed bids.
Council leader Councillor Gerald Vernon-Jackson said the bid would '˜protect' the site from developers, and the Lib Dems had done this previously atÂ Governor's Green in Pembroke Road, and at the playing fields in Eastney.
Cllr Vernon-Jackson confirmed if the council was successful, the authority would still build homes '“Â but also look at a convalescence home or dementia care to '˜take significant pressure off' Queen Alexandra Hospital in Cosham.
He said: '˜There will be some level of development there whoever buys it and I would like to make sure that, if it's at all possible, we might be able to buy itÂ and see where we are able to go with that.
'˜We don't know how many other people are going to bid for it. What I would hope if the council would buy it, we would be able to work with the local community in a way that a private developer just wouldn't.'
He added: '˜It's worth the council exploring '“Â we need to look at the financial viability.'
In opposition Cllr Vernon-Jackson called for the hospital to be used as a cottage hospital.
It's not yet known how much the council could bid, and it's unlikely that figure would be made public during any bidding process.
But Cllr Vernon-Jackson said Â£120m in loans had been spent on commercial property across the country by the previous Conservative administration, and a loan could be taken out to buy St James' Hospital.
'˜We spent Â£120m buying commercial property over the last couple of years and that's all over the country,' he said.
'˜We should be investing in Portsmouth. For me that's a higher priority than buying office blocks in Manchester.'
Any development would need to comply with the council's requirement of 40 per cent affordable housing, he added.
And he added: '˜Trying to pretend there would be no housing is not right.'
Posting online yesterday, he said: '˜The new Lib Dem administration at the city council has asked council officers to look at putting in a bid to buy the site to protect it from private developers.
'˜There will be some development here, but the local community needs protecting.'
Around 300 homes could be located at the site, plus a 70-bed care home. It is currently owned by NHS Property Services.
Councillor Matthew Winnington, Portsmouth City Council cabinet member forÂ health, wellbeing and social care, said if the bid is successful people with dementia could be looked after on the site.
Posting online he said: '˜One of the ideas for the site if the purchase is successful is to provide facilities for people with the earlier stages of dementia that we're currently lacking in the city which officers in Health, Wellbeing & Social Care are working on.'
Solent NHS Trust will keep a small area of the St James' Hospital land for its mental health services.