The design by the Turner prize winner Rachel Whiteread is being built on the city's Judenplatz, (Jews' place), historical heart of the Austrian capital's millennium-old Jewish community. Buildings that centuries ago resounded to morning prayers, and Talmud scholars poring over their sacred texts, now echo to power drills and hammering.
The memorial, to be inaugurated in December 1999, measures 10 x 7 metres and 3.8 metres high, the size of one room in the surrounding buildings. It represents the interior of a library turned inside out. Its walls are lined with rows of books, because Jews are known as the "people of the book".
The memorial stands above a medieval synagogue, where dozens of Jews committed mass suicide in the 15th century as a pogrom raged outside. The synagogue's rabbi then set fire to the synagogue and killed himself.
The Whiteread project has been dogged by controversy and opposition, from conservative politicians and within the Jewish community, some of whom would prefer something less to the taste of the Tate gallery, and more directly evocative of Treblinka.
"You can't discuss taste, and I don't want to criticise this, but I prefer monuments that you don't have to explain, something that speaks for itself," said a community leader Dr Ariel Muzicant. "A monument is made for ever, and maybe in a hundred years nobody will understand why this is a library. But I am very happy that we have it."
Local shopkeepers and bar-owners look on unhappily, less than pleased at the new architectural addition, a permanent reminder of the most unhappy episode in modern Austrian history, when 65,000 Jews were killed by the Nazis and their local accomplices.
"It's too big and nobody know what it means," said one bar-owner, who refused to give his name. "I'm not a racist and I don't have anything against a Holocaust memorial, but this is not clear what it is - 95 per cent of the people in this square agree with me."
The construction of Vienna Holocaust memorial is the latest stage in a shift in national consciousness about Austria's role in the Holocaust. For decades after the Second World War, Austrian politicians claimed their country was the first victim of Nazism.
"Austrians have their guilt over the Holocaust so they needed a memorial to remember what happened, especially so that the young people don't forget," said Dr Alfred Stalzer, press officer for the memorial.
The process of re-examination began with the scandal over Kurt Waldheim's election as UN Secretary-General, but the country began to come to terms with its past only in 1991, after the former Chancellor Franz Vranitzky begged forgiveness for the deaths of victims of Nazism.
"It took a long time for us to discuss our history and the Holocaust in a correct way," said Dr Stalzer. "The effect of the Waldheim episode was to begin to make it accepted that Austria's role was not that of a victim, but took an active role in the Third Reich." The shadow of the Third Reich still hangs over Austria as it prepares for its first war crimes trial for decades. Heinrich Gross, 84, will stand trial this year on nine counts of murder, stemming from his alleged participation in the Nazi euthanasia programme. The murders allegedly took place during his tenure as head of Am Spielgelgrund Children's Clinic at Steinhof in 1944.
For Jewish community leaders such Dr Ariel Muzicant, that the memorial has been built at all is something of a triumph. In Berlin, Vienna's great historical rival, German politicians have not even yet approved a proposal. The plan by a US architect Peter Eisenmann for a memorial of 4,000 stones was favoured by the former chancellor Helmut Kohl but has run into a bureaucratic quicksand. The German parliament will vote on the issue this summer. In Vienna, like its neighbour Budapest, Jewish life is being rebuilt. The city is home to 10,000 Jews, although the scars of the Holocaust run deep. But the fin-de-siecle Vienna - cosmopolitan Hapsburg capital, pivot of Mittel-Europa where Jewish culture flourished, spawning such giants as Sigmund Freud, Gustav Mahler, Arthur Schnitzler and the founder of modern Zionism Theodor Herzl - can never return.
The Vienna City Archaeologist Ortolf Harl wrote of the synagogue excavation on Judenplatz: "We uncovered the preacher's pedestal whose floor tiles have been preserved to date: they were blazed by the heat of the ravaging fire and thickly covered by the ashes of oblivion."