The work will take two months, as lifting and then relaying thousands of granite cobbles adds complexity.
The water main under Mansell Street and Mill Street in Town's Old Quarter is 100 years old next year.
It has burst twice recently, damaging a business premises, and Guernsey Water will begin to replace it from Friday 2 January.
The work will mean there is pedestrian only access from the Market to the top of the Old Quarter, as the main will run above ground at times to keep flats and businesses connected.
Guernsey Water's capital delivery manager, Carl Falla, says it must be done:
"Given the age and the increasing frequency of bursts from this pipe, we have prioritised its replacement and chose January to allow the
Christmas shopping season to carry on unimpeded.
"We know it will cause some inconvenience to businesses in the area, and that’s why we have written to them all outlining the plan and we will continue to keep them updated throughout."
The streets are cobbled for much of their upper sections, and so removing and replacing them will be time consuming:
“It’s going to be a meticulous job, with each of the thousands of cobbles removed, cleaned and returned as they were.
"The new water main is also larger and should not need to be replaced until nearly the turn of the next century.”
The work is part of an ongoing investment in infrastructure by Guernsey Water.


User pays when Guernsey roads have to close
Channel Islander abandons Bordeaux as the flames 'arrive at the city's gates'
Annual Guernsey Scarecrow Festival set to raise thousands for charity
Channel Islands face 'physical' Poland test
Baby born on Guernsey's Marine Ambulance
New interim leader for Guernsey's healthcare system
Guernsey's reservoir levels falling after prolonged dry spell
Guernsey's Commonwealth flag carrier in early Games win