Developers applied to build a Travelodge, complete with ground floor shops, on the site at the bottom of Sutton High Street, near the junction with Burnell Road.
It is thought the project could bring in as much as £1.1m of additional revenue for local shops, restaurants and businesses.
Sutton Council's Development Control committee gave the scheme the green light after planning officers said it "would promote a greater footfall to the site and increase the vitality of this part of the town centre".
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A report found: "There is a recognised shortage of hotel accommodation within the town centre and it is considered that this proposed use could potentially make a significant contribution to the attractiveness of the town centre as a location for business and for leisure visitors."
It added: "The building will act as a landmark... and it is considered that this is a high quality scheme comprising a modern design approach to breathe new life into this prominent site."
A public consultation to showcase the proposed redevelopment was held over the summer and the developers have since included measures to minimise the impact of the development on local residents.
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