Yes, that is permissible and there is nothing wrong with it, because the prohibition on taking the Mushaf into it and playing a recording of Qur'aan in it is out of respect for the Holy Qur'aan, as this (the bathroom) is the place of impurity (najaasah) and uncovering ‘awrahs, and it is a place where shayaateen dwell. Once these characteristics are not present and the place has become pure and clean, then the ruling changes accordingly.
The land where the mosque of the Prophet (blessings and peace of Allah be upon him) was built in Madeenah had been a graveyard for the mushrikeen, but the Prophet (blessings and peace of Allah be upon him) removed the graves and built his mosque in their place.
Al-Bukhaari (1868) and Muslim (524) narrated that Anas (may Allah be pleased with him) said: The Prophet (blessings and peace of Allah be upon him) came to Madeenah and ordered that the mosque be built. He said: “O Banu’l-Najjaar, name me a price for this garden of yours.” They said: No, by Allaah, we will only ask its price from Allaah. He ordered that the graves of the mushrikeen be dug up, the ruins levelled and the trees cut down. They lined the tree trunks up facing the qiblah of the mosque.
Al-Nawawi (may Allah have mercy on him) said:
This indicates that it is permissible to dig up old graves and that if the soil that is mixed with their remains and blood is removed, it is permissible to pray on that ground, and it is permissible to take that place as a mosque once the ground is purified. End quote.
The Standing Committee for Issuing Fatwas was asked:
There is a group of Muslims in the city of Atlanta in the state of Georgia in the United States. They want to build a mosque in order to offer the five daily prayers and Jumu’ah, and there is a church building for sale. Is it permissible for them to buy this church and turn it into a mosque, after removing the crosses and images in the building?
Yes, it is permissible for them to buy it and turn it into a mosque, but they must remove the crosses and images in the building and everything that indicates that it is a church. We do not know of any reason that would make it forbidden to do that. End quote.
Shaykh Ibn ‘Uthaymeen (may Allah have mercy on him) was asked:
Is it permissible to turn washrooms into prayer rooms, i.e., after cleaning them and changing them?
Shaykh: Why is it not permissible to pray in toilets?
Questioner: Because they are places of impurity.
Shaykh: Because they are places of impurity. But if the impurity is removed and they are purified, is it permissible to pray in them?
Questioner: Yes, it is permissible.
Shaykh: Now if the ground is impure (najis) and is purified with water, does it not become permissible to pray on it? When the Bedouin came in and urinated in the mosque, the Prophet (blessings and peace of Allah be upon him) ordered that water be poured over his urine, then it was purified and prayers could be offered in that place. By the same token, if graves are dug up and the place is turned into a mosque, it is permissible to pray there. Do you not know that the Mosque of the Prophet was a place where there were graves of mushrikeen, then they were dug up and it was made into the Prophet's Mosque, and one prayer offered in it is better than 1000 prayers offered anywhere else except al-Masjid al-Haraam?
So the ruling depends on the reason. Nowadays water can be purified by using chemical substances, such as purifying impure water and sewage water. This means that if you add chemicals to this water and purify it, then it becomes taahir and there is nothing wrong with it. Take this shar’i principle, that the ruling depends on the reason for it.
Liqa’ al-Baab al-Maftooh, 10/135
Based on that, if the bathroom is renovated and made into a dressing room, then the ruling on washrooms no longer applies and it is permissible to read Qur'aan and pray in it, and to take the Mushaf into it.
And Allah knows best.