A 15,000-capacity indoor arena looks set to be built in Cardiff Bay on the site of the Red Dragon Centre.
With the Motorpoint Arena holding 7,000 people and Principality Stadium 74,000, city planners wanted a venue with a capacity between the two.
Various sites were mooted with an arena suggested as part of a £150m redevelopment of Cardiff Arms Park.
But Atlantic Wharf was chosen - and the Red Dragon Centre will be demolished to make way.
The centre opened in 1997 and is home to radio stations Capital FM and Heart FM, a casino, restaurants and cinema.
Before demolition work can begin, a new leisure complex will be built next door.
"We want to re-energise Cardiff Bay boosting its profile as a leisure-based destination," said Coun Russell Goodway.
"This new development can help to reinvigorate the area."
Cabinet members are set to grant permission for detailed work to begin next week with a planning application expected to be submitted in July 2019.
The new arena would face Lloyd George Avenue and the Oval Basin outside the Senedd and Millennium Centre.
But work would be completed in stages - starting with a multi-storey car park on the Red Dragon Centre's overflow car park.
The new leisure complex would then be built on the main car park, with the existing one knocked down.
Economy Minister Ken Skates said the development was "crucially important".
Cardiff's and Bristol's councils have been trying to create a venue that would attract major acts and fans from south Wales and the south west of England for a long time.
A scheme next to Temple Meads station was first mooted in 2003, but was scrapped in September, with Bristol's mayor calling the £150m project "too risky".
Coun Goodway said there had been "significant interest" from arena operators wanting to run the new Cardiff venture, including Live Nation, who manage the city's Motorpoint venue.
"The additional footfall that the arena and new leisure and retail site will generate will also increase the demand for better transport links between the city centre and the bay," he added.
"This should only help to drive the need for the new metro system and putting an arena in the bay could also help speed up the completion of the Eastern Bay Link Road."