Controversial plans to build 80 homes on greenfield land in the Forest Of Dean town have been allowed on appeal.
An Inspector signed off development of the unallocated site on the outskirts of Lydney after finding the council had a housing shortfall of almost 2,000 homes.
They said this outweighed the proposal failing the national policy flood risk sequential test.
Cheltenham-based Lantar Developments Ltd can now forge ahead with developing the 12 acre site north of Grove Lane.
The scheme will include 50% affordable housing and vehicle access on Allaston Road and pedestrian access from Grove Lane.
Hundreds of people had fought against the outline application. They said building on the agricultural land would lead to a loss of open space, put a strain on local services, that there were brownfield sites suitable for housing and Lydney had more than its fair share of new homes.
In total more than 380 people opposed the scheme along with Lydney Town Council.
Forest of Dean District Council refused permission in November saying it was an "unsustainable form of development" due to the scheme's reliance on cars and limited bus services in the area. They said walking and cycling were not suitable options because of the landscape.
The decision has now been overturned by the Planning Inspectorate following a lengthy appeals process.
While the inspector agreed that the development would lead to "erosion" of some of the area's semi-rural character, they said both parties had agreed that the site could be developed in a manner that would respect the character, scale, form and density of the surrounding area.
They also said there would be economic benefits from the construction and the future residents spending money at local shops and suffice in and around Lydney.
There are 1,638 households in need of affordable housing in the Forest of Dean district, with 521 of those demonstrating a connection to Lydney - representing the highest area of need.
The inspector said the main benefit of the scheme would be the delivery of 80 homes towards the council's current shortfall.
The council cannot demonstrate a five year housing supply with figures indicating it has between 1.81 and 1.93 years with related shortfalls of between 2,004 and 1,840 dwellings.
The appeal decision said "magnitude of shortfall" meant there was an agreed "substantial weight" in favour of the appeal.
The appeal was allowed but an application for an award of costs was refused.
The inspector said the council's refusal was "sufficiently evidenced and understandable" meaning there had been no unreasonable behaviour resulting in unnecessary or wasted expense for the developer.