The Queenstown Lakes District Council has accepted a private plan change to allow Arrowtown to expand by a further 215 homes.
The proposal, by a group of eight landowners, will now be opened to public consultation.
Two other plan changes are already on the table for Arrowtown, both seeking to allow more than 200 homes to be built.
Many Arrowtown residents have opposed the town's expansion, with many wanting to leave the town boundaries as they are.
Meanwhile figures released by the Queenstown Lakes District Council this week show that more than 60% of potential home sites in the district remain untouched.
The council says that's enough to accommodate residential growth for the next 30 years.