Part of a grade II-listed Georgian building is being converted into £134,000 living quarters for De Montfort University's vice-chancellor.
Work has started on creating an apartment suite for Professor Dominic Shellard in the property known as 1 Mill Lane, in the heart of the university's city centre campus.
It will provide rent-free accommodation for him and any successive vice-chancellors.
The University and College Union (UCU) says it is concerned the vice-chancellor is being provided with new accommodation at a time of staff reductions.
The university has vice-chancellors' accommodation in its Trinity House building, but says it is "not fit for purpose".
Prof Shellard lives in private accommodation elsewhere in the city centre but will have access to a three-bedroom apartment, across the first and second floors of the building, when work is completed in September.
His living space will be above a new £225,000 hospitality suite, for entertaining VIP guests, who would currently be hosted in hired marquees on campus or at external venues.
Ian Blatchford, chairman of the board of governors, said: "The board of governors felt it was essential to bring DMU into line with other universities to help attract and retain the very best leadership.
"We looked at a number of alternatives and it was clear the most cost-effective option was to take the opportunity of the refurbishment of 1 Mill Lane."
The building is home to the Leicestershire Chamber of Commerce offices, but is largely disused.
The overall budget for the building's conversion stands at £1.3 million – most of which, £950,000, will be spent on new offices and classrooms.
It is part of a wider £100 million refurbishment of the city centre campus.
De Montfort's UCU branch chairman Alan Ryan said: "We do find it hard to understand why providing vice-chancellor's accommodation is a priority at this time."
A lecturer at the university, who did not want to be named, told the Mercury: "There is quite a lot of anger about this.
"Why are we using this money to provide a nest for the vice-chancellor.
"It is being paid for by the bond the university has taken out – which is effectively a mortgage.
"In the future, the interest on that will be funded by students' course fees so the vice-chancellor can have a cushy place to live right now.
"Imagine the outrage there would be if a big flat was built for Sir Peter Soulsby in the city centre.
"This is the same thing."
The plans for the conversion, approved by Leicester City Council, show a new lift and staircase will be installed in the building.
The first floor of the vice-chancellor's apartment will have a hall, a lounge, a kitchen, library and study.
Above that will be the master suite, with a dressing room and en suite bathroom, two guest rooms and a meeting room.
The university says the vice-chancellor will contribute to the cost of utility bills and that no decisions have been made yet about how the flat will be furnished.
