Up to 60 new houses are to built on surplus land near the entrance to the regional college site in Huntingdon.
Bosses at the college, now the Huntingdon Campus of Cambridge Regional College (CRC), have vowed that the sale of the land would release funds for investment in facilities and equipment for students.
The housing scheme has been approved by Huntingdonshire District Council just after the Hunts Post revealed that CRC had pulled out of a multi-million pound plan to consolidate all its facilities at the Alconbury Weald development site on the former Alconbury airfield.
The scheme involves the demolition of the disused doctor's surgery, which stands near the college entrance off California Road, together with the construction of 50-60 homes, a new access and open space.
Huntingdon Town Council had already approved the plan, despite its concerns over the loss of open space.
People living near the college had opposed building on a substantial area of land next to the college on an open space they described as a "green lung" for the area and had also come out against plans to move the college to another site saying it would be a major loss to the area it covered.
The college said the housing plan was for unused land at the side of the college which had been surplus to requirements for many years.
The scheme involves the construction of about 36 houses for sale on the open market, 17 social rented homes and seven "intermediate" properties.
Deputy principal Derek Sharp said: "We are pleased to see applications to study at our CRC Huntingdon campus are up by nearly 40 per cent last year, with further growth projected.
"The Huntingdon site has been going from strength to strength following merger with Cambridge Regional College in 2017 and nearly £0.5m has already been invested."
He said: "The sale of this land will release funds for further investment in facilities and equipment for our students, including expansion of our construction facilities."
Mr Sharp added: "These funds will ensure we provide the very best facilities for our students and support the educational and training needs of learners and employers in and around Huntingdon."
The district council has imposed a number of conditions before development goes ahead, including a check for contamination on the site, access, tree and hedge protection foul water disposal, layout and landscaping and a scheme to reduce lighting pollution.