English Heritage has recommended that Brighton and Hove City Council grants listed building planning permission to proposals to redevelop the Brighton Hippodrome.
Developers want to turn the Grade II-listed theatre into a £35m eight-screen Vue cinema and four restaurants.
Hundreds of people want the building to remain a live performance venue.
But English Heritage said the cinema proposals were likely to represent a "final chance to save the Hippodrome".
In a response to the council's consultation, Samantha Johnson, inspector of historic buildings and areas at English Heritage, described the building as one of theatrical architect Frank Matcham's "masterpieces".
"The building is in a grave condition and is on English Heritage's Buildings At Risk Register," she said.
"The proposals would cause harm to the significance of the building.
"However, they are likely to represent a final opportunity to save the Hippodrome, and would conserve the aesthetic values associated with Matcham's phase of works."
She concluded that the scheme represented "the best chance to conserve this very vulnerable grade II* listed building, and that its conservation is a principal public benefit".
The now derelict building began life as an ice rink in 1897 before becoming a circus, which closed in 1902. It reopened as a theatre the following year.
In 1967 it was transformed into a bingo hall, which it served as until 2006.
The proposals include integrating the building with the nearby Dukes Lane shopping arcade, and creating four new shops and a public square.
A new floor will also be inserted within the dome to create restaurant space above, while an eight-screen cinema will sit below with the capacity for more than 1,000 seats.
'Top theatre at risk'
The developers said that any changes to the interior of the Hippodrome would be such that they could be "effectively removed with minimum impact" in the future.
Chris Moore, from Alaska Developments, which is behind the proposals, said English Heritage's response represented 12 months of "dedicated discussions and consultations".
A petition started in October to keep the Hippodrome as a theatre was signed by more than 1,000 people.
Opponents to the plans include the Theatres Trust, which named the Hippodrome as one of the UK's top theatres at risk from being lost as a performance space.
Trustee Penelope Keith said: "Plans for the cinema conversion come close to heritage destruction of a Grade II* listed building and there will be little chance of this wonderful theatre ever being used again for live performance."
- 21 January 2014
- 5 July 2012