There had been calls for the building to be destroyed to prevent it becoming a shrine for neo-Nazis.
Adolf Hitler's Austrian birthplace is to be the new home of a disability charity.
Austria's parliament passed a law allowing it to seize the house following years of controversy and fears it would become a shrine for neo-Nazis.
Owner Gerlinde Pommer had repeatedly refused to sell the building in Braunau am Inn, or allow renovations. with calls for the building to be pulled down.
But on Thursday Interior Minister Wolfgang Sobotka, who had previously said he wanted to see it demolished, Braunau mayor Johannes Waidbacher and provincial governor Josef Puehringer met and decided to keep the building.
In a statement, the three said keeping it standing would be "a life-affirming message" and "a clear symbol against the crimes committed by Hitler".
Mr Puehringer added that destroying the structure where the Nazi dictator was born in 1889 would have fuelled accusations of "tearing down a piece of burdensome history".
Instead, officials want to remodel the property's facade to eliminate its draw, and are offering it to Lebenshilfe, a charity which supports people with learning difficulties.
The building had previously been used by the charity as a day centre and workshop for people with special needs.
But it was forced to move out several years ago when Mrs Pommer blocked renovations.
Hitler was born in a rented room on the top floor of the building, near the Austro-German border, on 20 April 1889.