Inverness College is to relocate to a new £75m building at a proposed campus.
The college's board said there had been reservations about shifting to the Beechwood site, but it had since been convinced it was the right move.
The institution's involvement in the project led by Highlands and Islands Enterprise (HIE) was seen as a key part of it being a success.
But a body representing Inverness businesses said the move would harm city centre traders.
Garek Begg, of Inverness BID, said valuable income would be lost as hundreds of college staff and thousands of students relocated to an out-of-town site.
Redeveloping Inverness College's current base on Longman Road in Inverness was also under consideration.
The board's concerns over relocation had centred on what transport links and facilities would be available.
Money to pay for the new building will be sought from the Scottish Funding Council and European Regional Development Fund.
The college board's chairwoman Mo Shepherd said there had been potential in both options that management had looked at.
She said: "Following a lengthy and necessary deliberation process, it is with a great degree of pride and excitement we're now able to announce the planned location of our new 21st century campus.
"Both potential sites were viable for our plans, however, on balance, it was decided Beechwood offers us an opportunity to realise our vision for a new, modern, tertiary education facility which will be the pride of Inverness and the wider Highland region.
"It should be stressed however, that this decision is only the start of a far wider process."
The first phase of the education and research campus was given conditional approval by Highland councillors last month.
HIE proposes to spend £25m on developing the site which would also provide a base for the prospective University of the Highlands and Islands.
The enterprise agency was criticised last year for its planned spending on the campus.
HIE claimed the project would create jobs, retain talent and generate millions of pounds for the Highlands economy.
But Western Isles council - Comhairle nan Eilean Siar - said HIE should be investing in fragile areas of the region and not "booming" Inverness.
Inverness College's involvement in the project was also a source of debate.
In March this year, seven politicians signed a letter that said Beechwood was the best place for it.
UHI principal James Fraser said he was delighted by the college's decision.
He said: "This new campus will meet the needs of both current and future UHI students, including increasing numbers from the rest of the UK and worldwide, which will certainly bring economic benefit throughout the city."
But Mr Begg said the new campus would be damaging for Inverness city centre and created "traffic chaos".
He said: "It certainly isn't going to be a good idea for Inverness.
"We have been striving hard in Inverness BID to try and get regeneration into the city centre and clearly this is another opportunity being created out of town."