The work at Haymarket bus station will include 11 new bus stands at the Charles Street facility.
The city council also is bidding for an additional £3.5m in funding from the Department of Transport.
"The Charles Street station is a disgrace - it is not good enough because it's cramped and inconvenient," Mayor Sir Peter Soulsby said.
"It is just not good enough a modern city like Leicester.
"We have to make sure that travelling by bus to and from Leicester is a realistic and attractive choice."
A council spokesman said the project would "help ease bus congestion and queuing" at the station.
Several commercial buildings will be demolished to increase the size of the revamped station and public access will be improved.
The bus station is a base for 25 local bus services and is used by 20,000 people a day.

At an earlier hearing, Det Sgt Matt Swash, 41, who is based at March police station, admitted accessing unauthorised information about a colleague on a police computer system.
At Cambridge Crown Court, Swash was sentenced to two months in prison, suspended for 12 months.
He remains suspended pending internal police misconduct proceedings.
Cambridgeshire Police said Swash would face no further action over other charges, including 11 counts of sexual assault and two counts of misconduct in public office.

Both teams have to play inter-county matches six days after the Ulster final at Owenbeg and Armagh were reported to want a new date set for the decider.
However, the Orchard county have said the fixture will be fulfilled.
On Saturday, Armagh play Donegal in the Nicky Rackard series and Antrim take on Carlow in the  Christy Ring Cup.
"It is not ideal and we do not have the depth of squad that Antrim have," said Armagh hurling manager Sylvester McConnell.
"It presents us with a dilemma - which competition to prioritise.
"We did not formally request that the provincial hurling decider be deferred, and we will definitely play this Sunday's match."
Antrim have been Ulster champions for 15 years in a row.
A £10.5m revamp is planned to expand facilities at Leicester's "cramped" bus station.
[NEXT_CONCEPT]
A Cambridgeshire police officer has been sentenced for an offence under the Computer Misuse Act.
[NEXT_CONCEPT]
Sunday's Ulster Hurling Championship final between Antrim and Armagh will go ahead as scheduled despite concerns over fixture scheduling.