The $330 million Canyon Forest Village project on land considered a gateway to the canyon includes space for 1,270 hotel rooms and 270,000 square feet of retail space, enough for four large department stores. It also includes 20 acres to house people working at Grand Canyon National Park.
"Free enterprise in this region is alive and well," said Eleanor Towns of the U.S. Forest Service, which oversees the land where the development would be built.
She said the more ambitious of two plans was picked because it would better serve tourists and help solve a housing crunch in the region.
The other plan would have cut out 50 acres for federal housing and community facilities and was supported by local businesses, who fear a major commercial center will cut into their profits.
"This will severely impact our community," said Jim Hoffman, mayor of Williams, 50 miles south of the canyon.
The decision ended five years of analysis and public wrangling over how to develop the national forest and who gets to benefit from it.
Hoffman and local lodge owner Chris Thurston have threatened lawsuits to stop the project.
Residents from nearby Tusayan raised concerns that the new development might deplete their ground water supply.
Tom De Paolo, the Scottsdale developer who proposed the project, and his investors wooed local environmental groups and tribes into supporting Canyon Forest Village by promising to transport Colorado River water by train and pipeline from Arizona's western border instead of depleting ground wells in the park.