Japanese architect Kuma will convert the ShinPuhKan building – originally designed by Tetsuro Yoshida and completed in 1926 – to create suites set around a plant-filled courtyard.
"Since the beginning of Ace, we've dreamt of Japan," said a statement from the American hotel chain, which opened its first venue in Seattle in 1999.
"We've spent decades admiring Japanese culture and craftmanship, collaborating from afar with Japanese artists and brands whose work we love."
Ace Hotel is working with Japanese developer NTT Urban Development Corporation on the project.
The red-brick building initially operated as a telephone exchange and was later converted into a shopping centre before it's present renovation.
Kuma's transformation will see rooms created behind glazing in gridded wooden frames. These will face onto a planted courtyard featuring a pool of water, while slender louvres and meshes applied to the road-facing facades will help filter light and breezes.
"To begin with, the proposition was to create a dense garden where communities, as well as the past and the present, are connected to this venerable land with its various gardens, which have existed since the Heian period. The existing Kyoto central telephone office building was designed by one of the great Japanese modern architects Tetsuro Yoshida," said Kuma.
"Through the central courtyard, this red-brick building will converse and create a new harmony with a wooden grid system that reminisces traditional Kyoto," he added.
Kengo Kuma ranked at number 14 on Dezeen Hot List 2017. The architect's other hospitality projects include a hotel arranged around a wedding chapel in Miyazaki and a plant-covered eco hotel proposed for Paris.