Planning bosses have given the go-ahead for the Grade II listed building to be converted into eight homes.
A further 21 homes will be built on greenbelt land — in a bid to save the historic building.
The decision to transform the former restaurant, which closed in August, was taken at a special planning meeting yesterday.
But those against the plans say the fight to save the site from development is not over because the final decision lies with the Secretary of State.
Developers Jones Homes put forward the proposals.
There has been widespread public opposition to the plans, as well as from the Civic Trust, English Heritage and councillors.
More than 30 letters of objections were sent to Bolton Council, with one describing the site as a “sacred historic place”.
Bolton Council’s planning department recommended the application be approved, claiming the proposal would save a piece of Bolton’s history and, without it, the building could fall in disrepair.
It has already been targeted by vandals and thieves.
Planning officer John Berry said the plans provided “ an opportunity to secure the future of the Coaching House now” and added the proposals were considered to be a “sympathetic conversion”.
Cllr Roger Hayes spoke against the planning application. He said: “A major argument put in favour of the application is that this is the only way to save Smithills Coaching House and the public interest of doing this outweighs any damage that would be done. This is not the only way to save the Coaching House.
“The applicant is using the implied threat that if this is not allowed, the Coaching House will rot.
“English Heritage recommends that, if the building deteriorates whilst vacant, the council should consider service of an Urgent Works notice.
English Heritage is prepared to consider underwriting risks and costs.”
Bradshaw councillor Mudasir Dean described the decision as a “very sad day for the heritage in Bolton”. He added: “I don’t believe this was the right way forward for the Coaching House.”
But other councillors argued the development was the only option of saving the Coaching House — despite calls by members to see if other potential buyers for the site would come forward.
Cllr Linda Thomas said: “I think the development is the only means of keeping the Coaching House sustainable and it would a big gamble to refuse or defer it.”
Cllr Andy Morgan added: “It is quite clear that the Coaching House is deteriorating as we speak.
I think the Coaching House is at risk now. We need to make a decision now. If we do nothing, we lose the Coaching House.”