Lancaster City Council granted approval for the plans at a planning and highways committee meeting this week.
The scheme, submitted by developer Inayat Munshi, will see the demolition of the former Palace Cinema, which later became a nightclub and soft play area, and the construction of a four storey, 33-bed student block.
The developer had initially proposed six storeys and 42-bedrooms, but the application was withdrawn for review of the design.
Lancaster Civic Society said it was pleased to see that the height of the building had been reduced, although a spokesman said it would like to see it lowered even further so that no part of the roof will be visible from Dalton Square.
The scheme involves the demolition of the majority of 13 Dalton Square, which backs on to Mary Street, but preserves the lower ground floor of the building fronting Dalton Square.
It will include a total of 33 bedrooms, made up of 24 one-bedroom studios, 3 two-bedroom apartments and 1 three-bedroom.
A new glazed shopfront with aluminium frames has been proposed to 13 Dalton Square.
On the ground floor would be a lobby, office space, common room, five studios, with a laundry facility, bike and bin store and plant room.
The first to third floors would be a mixture of studio and apartment accommodation.
There is a retaining wall along the southern boundary of the site which is proposed to be clad with climbing plants.
The appearance of the building along Mary Street would be slightly angular with a glazed ground floor and stone fronted for the three storeys above.
Two letters of objection were submitted, one citing the saturation of student developments in the city centre, the other concerned about the potential impact on the Dalton Rooms and Glow Rooms nightclub next door, along with the significant impact on the conservation area.
Planning officers recommended the development for approval saying: “The development is located within the heart of Lancaster city centre and therefore a location which can be supported by the Local Planning Authority for purpose-built student accommodation.