Castle House is used infrequently as lodgings for High Court judges visiting the city and to host civic dinners.
The property, in Castle Street, near Leicester Castle and St Mary de Castro church, is owned by Leicestershire County Council, despite its city centre location.
Conservative County Hall leader Councillor Nick Rushton said: “We are looking at how we use our buildings and that one has real potential.
“It could be a fantastic five-star boutique hotel that would beat anything Nottingham or Derby could offer. Judges could still stay there if they wanted.
“It’s in a cracking location. It is a large place but you would need some of the other buildings around the square outside the castle.”
Coun Rushton said those buildings were owned by Leicester City Council and were largely unused so he would raise the idea with city mayor Sir Peter Soulsby.