Plans have been submitted to erect 21 flats on the site currently occupied by Brannigans, on Hawkslaw Road.
Emergency services had to deal with a fire at the former pub last month – an incident police are investigating and treating as deliberate fireraising.
The submission of the planning application has been welcomed by local councillor Colin Davidson.
He has campaigned for more to be done to promote development of derelict buildings in the Levenmouth area, following fires at Silverburn House and the former Denbeath Miners Welfare Club.
He told the Mail: “It’s positive that this building is to be redeveloped.
“And it’s getting redeveloped by a company in Leven which is employing local people.
“Also, if there are 21 flats on the site, that is 21 lots of council tax that we are not currently receiving. So it’s a win-win.
“It will be a fantastic development.”
Cllr Davidson said he would like to see similar housing developments at other derelict sites in the Levenmouth area.
In particular he highlighted the case of a former Leven pub.
He added: “Because of the difficulties contacting the owners of the Three Ways Inn, I’m urging the council to do a Compulsory Purchase Order with a view of building more social housing.”