Greatham-based charity The Hospital of God says it has made the very difficult decision to close Gretton Court by the end of March.
It says it is in the face of substantial challenges in the care sector including staffing difficulties, funding uncertainty and the need for significant ongoing investment in the 28-year-old building.
The facility is currently home to 27 residents.
The Hospital of God says it will work with residents, families and other stakeholders to ensure as smooth a move as possible to other homes.
It is also working closely with 48 staff affected including redeployment elsewhere within the charity.
Hartlepool Day Centre, run from a separate annex on the Gretton Court site and which provides dementia activities and support, will not be affected.
Lawrence McAnelly, director of the Hospital of God, said: “We fully acknowledge and understand that this is difficult news for our residents at Gretton Court, their families and for our staff.
"It has been a very difficult decision to make and we have had to consider all the factors that impact on our ability to deliver the high level of care that we pride ourselves on and that regulators expect.
"We are committed to ensuring a safe and sensitive transition of residents to new homes over the next three months and I am grateful to our staff for their dedication and professionalism in this.”
The Hospital of God has run the 37-bed facility at Heather Grove in the Jesmond area of town since 2008.
But the charity says the care sector is experiencing a recruitment crisis including an extreme shortage of registered nurses.
It adds it is increasingly difficult to recruit and keep nurses to maintain the quality and consistency of dementia nursing care that is a priority for the charity.
They add the care sector is also severely impacted by funding pressures and there is uncertainty surrounding social care reforms and future provision.
The Gretton Court building would also need significant ongoing investment which the Hospital of God considers unfeasible in the current climate.
It is implementing an extended three-month transition period give all residents and their families time to find suitable new places and will support them with advice, help and relocation.