Proposals by Kingdom Housing Association include creating 189 'affordable' homes at the Fraser Avenue regeneration site in Inverkeithing.
Designed by 7N Architects, the scheme is being funded through the Scottish Government, Fife Council and Kingdom HA among other contributors.
West Fife Planning Committee's approval now provides clearance to demolish 236 properties, redevelop the street and rejuvenate neighbouring areas of low quality external space.
Further plans for the project include creating retail units, a village green, a play park and associated infrastructure.
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In addition, new street layout will be built which incorporates improved links with neighbouring streets, new vehicle links and making existing pedestrian links feel safer.
More detailed information will be submitted to the planners to obtain full approval over the next few months.
Bill Banks, chief executive at Kingdom HA, said: "The confirmation of Planning Permission in Principle is a major milestone point for the regeneration project and delivery of a more attractive, safer place to live.
"We are pleased that the planning authorities have confirmed support for the development proposals which reflect community feedback obtained from a series of consultation events."
John Mills, the council's head of housing, said demolition was likely to start in September or December.
"The timescale for demolition depends on the council's ability to relocate tenants within and outwith Fraser Avenue and on the outcome of asbestos and ecology surveys," he said.
The overall project is due to be completed in 2021.
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