At a heated meeting of Dudley Council's Development Control Committee planning chiefs voted five to three in favour of the proposals, which will see the development of a 52 ft high curved roof mosque with a 62 ft minaret in Hall Street.
The development is also set to include a 120 space two-storey car park, a sports centre, an enterprise and education centre and a community centre.
Police were stationed outside the Council House from 4pm onwards yesterday as people gathered early in an effort to gain access to the public gallery.
The doors were locked after the maximum allocation of 50 places was filled, leaving dozens of furious protesters stranded on the streets outside.
During the meeting opposition was raised over the size and design of the three-storey building and the lack of parking in the area.
Ukip Councillor Roger Scott-Dow said he feared car parking facilities at the site would not be adequate, while Councillor David Caunt said he opposed the plans because they lacked detail as to when each stage of the job would be completed by.
The authority's former deputy leader, Tim Wright, told the meeting: "Both the scale and size of the architecture are alien to Dudley's existing buildings and would not be in keeping with the surrounding area.
"The proposal would also increase traffic problems on surrounding roads."
He added the development could have a negative impact on social cohesion in Dudley and encourage 'extremists'.
Councillor Qadar Zada, chair of the Development Control Committee, said the development had been shrouded in controversy simply because of the religious aspect to the application.
He said: "The site offers far more than just a mosque. Very few people are talking about the benefits of an enterprise, training and education centre in one of the most deprived areas in the borough."
The council received 370 letters of support and a petition for the application with 1,718 signatures, while 885 letters were sent in against the plans.
The latest designs follow a previously failed bid, which had the minaret at a height of 109ft.
Dr Khurshid Ahmed, director at Dudley Muslim Association, hailed the result, but said the stand-off had opened up wounds within the community that needed to be healed.
"Sadly relationships within the town have been messed up and it is about time we all started to rebuild."
The plans could still be halted by a High Court hearing early next year over whether the land should revert to council ownership. A judge previously ruled the council could reclaim the land, but the association has lodged an appeal over the decision.