Plans to build 350 homes on land owned by Durham Tees Valley Airport (DTVA) near Darlington have been approved, despite more than 400 objections.
Owner Peel Group said the scheme was "vital" to the future of the airport, which it said was losing £2.5m a year.
Darlington Council narrowly backed the outline planning application on condition risks of noise, traffic congestion and flooding were addressed.
Campaigners say the move is the "death knell" for passenger services.
The council's planning committee was deadlocked on the issue with four members voting for and four against. Chairman Paul Baldwin used his casting vote to push through the plans.
An airport spokesman said: "These proposals are a key element in implementing the strategy to secure the sustainable long-term future of the airport, with the revenue generated from these developments being fully reinvested in the airport business.
"Key elements in the outline planning application include 350 houses, small scale retail space, restaurants and other leisure facilities. Community facilities are also part of the application.
"The application also includes a commitment to invest in affordable housing, highways and transport infrastructure."
Passenger numbers at the airport have slumped 85% from 918,000 in 2006 to 132,000 last year, with the economic downturn and the decision by some low-cost airlines to pull out being blamed.
A spokesman for Save Teesside Airport, which presented a 1,650-name petition opposing the 61-acre (24.5 hectare) development, said: "This is the death knell for the airport.
"Placing housing so close can only lead to noise abatement measures, which ultimately means reduction of airport use and eventual closure.
"It's clear what people want and that is frequent flights to popular destinations at realistic prices. You don't get any of that from Teesside at the moment."
A meeting of the full council will have a final say on the proposals later this year.