A planning inspector reversed Colchester Council's ruling against the Stane Park development.
The council said the scheme, spearheaded by Churchmanor Estates, would have a detrimental impact on the town centre.
However, inspector Clive Hughes said the benefits of the scheme outweighed the reasons to refuse it.
He also said the council had illustrated double standards by promoting the new leisure development on the Northern Gateway while refusing the development in Stanway.
His decision was welcomed by Stanway MP Priti Patel who said: “I welcome the independent approach the planning inspectorate has given to this development.
"The Stane Park site was widely supported by the community and would have provided local jobs and facilities in an area of significant residential growth.”
Ms Patel added: "The planning inspectorate also highlighted the shortcomings in the way Colchester Council have handled planning matters in Stanway. "The council has prohibited development on sites where it should have been allowed while at the same time they have been promoted sites that they have an interest in.
"We have all been criticising the council for their shoddy approach to development in Stanway and after this damning report the council must change its ways.
"Colchester Council’s planning policies are a complete shambles and are failing residents in Stanway.
"The council should also review and reconsider their decision to refuse planning permission for Tollgate Village in view of this decision and the points raised by the planning inspectorate.”
The plans for Stane Park are for a pub, four restaurants and a coffee shop with Nando's, Bella Italia and KFC already in the frame to move in.
The decision raises questions over the bid for the new Tollgate Village - a stone's throw from Stane Park.
Colchester Council has resisted the leisure and retail project on 20 acres of land saying it wants to protect the town centre.
However, Mr Hughes said Stane Park could not impact on the town centre because of the distance between the two.
The Gazette contacted Colchester Council over the criticisms made by Ms Patel but it declined to comment.
After the inspector announced his decision, Dominic Graham, Colchester Council's portfolio holder for waste and sustainability, said: “We are currently reviewing the decision and carefully considering the short, medium and long-term implications.”