The Pest House on Manthorpe Road, one of only six of its kind in England, was built in 1584 to isolate people who suffered from serious illnesses.
The SKDC application for the Department for Digital, Culture, Media and Sport to list the property was supported by local historians from Grantham Civic Society.
A spokesperson for the Council said: "This is good news as it means any alteration would need special permission. As it was, it could even have been demolished and only the normal planning regulations would apply.
"It is now another part of Grantham which is being protected for future generations."
Civic Society treasurer Ruth Crook added: "Any effort to preserve the heritage of Grantham is very good news. So much of old Grantham has disappeared over the years, during Victorian times and then with 1960s development. The Civic Society motto is to preserve the good in the old and encourage the good in the new.
"The present building contains some stone walling which dates from the original Pest House. It was largely rebuilt in the late 18th century and also has other later additions. It is shown on early maps and on 19th century census returns."
It was built in the late 16th century, largely rebuilt in 1789-90, and altered and extended as a private dwelling around 1880.
It has been Grade II listed because of its architectural interest as a well-preserved example of a late-16th century Pest House (or pestilence house), and due to historic interest, being a rare surviving example of this type of building.
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