Civic chiefs have approved plans for 14 flats and two retail units in Bournemouth's Triangle area which will involve demolishing part of a listed building.
Members of the borough's planning board voted against their officer's recommendation that they should refuse revised plans for the site on Poole Hill and West Hill Road.
A deputation from the developers described the scheme as "an exciting project" which would breathe new life into the area.
Board members heard how changes had been made to the West Hill Road elevation of the building with increased glazing and concerns about loss of daylight had been unfounded.
Ward councillor Barry Goldbart supported the scheme. He said: "I believe that the proposed development will encourage future projects of this novel nature. This area of town cries out for development to compliment its unique nature."
Cllr Peter Charon, Cabinet member for housing, told the board: "The council needs affordable housing of all types; this area is calling out for significant development.
"If this application is refused when might another come along which would give the area the regeneration it requires?"
Cllr David Kelsey said: "This building has been derelict; it is about time this council made a bold move to regenerate the area."
But Cllr Roger West disagreed with their sentiments. He said: "I cannot see any good reason why we should be rushing through this development.
"I want this area to be regenerated; I also want affordable housing but I feel the officers have got it completely right."
His move to refuse planning permission won support from Cllr Linda Bailey and Cllr Beryl Baxter who said: "It is a listed building, we have to consider its integrity; the design is wholly inappropriate and would adversely affect the character of the area."
However, vice chairman Ron Whittaker described the proposals as "very imaginative," adding: "I desperately want to see investment in this area. Heaven help us if we get another bar or restaurant there."
The move to refuse planning permission was lost by three votes to four and a move to grant approval was carried by four votes to three.
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