The Rotterdam firm won a competition to transform the shopping centre into a park and is working with local studios The Urbanist Collaborative and LLJ Architects on the project. Construction is set to begin later this year.
The lagoon will stretch out towards the city's waterfront, opening up views that were formerly blocked by the China-Town Mall. Built in 1983, the shopping centre had become partially derelict and flooded according to MVRDV.
The new waterway will be flanked by sand dunes and indigenous planting to create a green corridor in the city's downtown area.
"This flooded old mall is going to be a poetic lagoon and an hip urban pool: a symbolic act," said MVRDV co-founder Winy Maas. "The connection with the waterfront will be completed by a green promenade and an artificial beach along the canal so as to celebrate the re-established view to the sea and the removal of the shopping mall, which previously obscured it."
"A large commercial structure of little architectural quality, it disconnected the city from its waterfront and soon fell into decline, becoming like the rotten tooth of downtown Tainan," he said.
The lagoon will be sunken below street level, occupying what was the shopping centre's underground car park. Remnants of its concrete structure, including square-sectioned columns will protrude above the water's surface.
Playgrounds and rows of shops will be set along the water at the lower level, while a steel bridge will link two street-level walkways. The perpendicular Haian Road will also be converted into parkland.
Glass-covered lifts connecting the park with street level will double as viewing towers. These structures will be illuminated at night to give the appearance of giant lanterns.
New transport routes will be created to free the area from heavy traffic and nearby roads will be pedestrianised by night, allowing cafes to spill out onto the street.
Construction is expected to begin in autumn 2016.
MVRDV was selected earlier this year to turn the 938-metre-long Seoul Station Overpass into a public park that could become South Korea's answer to New York's High Line.
The firm was founded in 1993 by Winy Maas, Jacob van Rijs and Nathalie de Vries. Its recently completed projects include a flower-shaped office block near Shanghai's Hongqiao Airport and it has also unveiled plans for a plant-covered complex in Amsterdam.
In an interview with Dezeen, Serpentine director Julia Peyton-Jones referred to MVRDV's 2004 proposal to encase the London gallery in a mountain-shaped pavilion as a "heroic failure."
Architects: MVRDV, The Urbanist Collaborative, LLJ Architects
Sustainability and landscape consultant: Progressive Environmental Inc
Structural engineers: Urban Sculptor Planning & Designing Consultants
Transport planners: THI Consultants Inc
MEP engineers: Songsing