We present a study of the paramagnetic metallic and insulating phases of vanadium sesquioxide by means of the $N$th order muffin-tin orbital implementation of density functional theory combined with dynamical mean-field theory. The transition is shown to be driven by a correlation-induced enhancement of the crystal field splitting within the $t_{2g}$ manifold, which results in a suppression of the hybridization between the $a_{1g}$ and $e_g^{pi}$ bands. We discuss the changes in the effective quasi-particle band structure caused by the correlations and the corresponding self-energies. At temperatures of about 400 K we find the $a_{1g}$ orbitals to display coherent quasi-particle behavior, while a large imaginary part of the self-energy and broad features in the spectral function indicate that the $e_g^{pi}$ orbitals are still far above their coherence temperature. The local spectral functions are in excellent agreement with recent bulk sensitive photoemission data. Finally, we also make a prediction for angle-resolved photoemission experiments by calculating momentum-resolved spectral functions.
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