Up to 1,400 new homes could be built on land which also includes the town’s former Nestle factory, which closed in 2012.
Shops, restaurants, a hotel, health centre and care home have also been earmarked for the site, off Wheldon Road.
Supporters of the scheme believe the proposals will change the face of the area, part of which has been unused since the chemical works shut 11 years ago.
Rhian Smith , speaking on behalf of Castleford Riverside Regeneration, who will carry out the work, told Wakefield Council’s planning committee: “The proposed development is important for the future of Castleford, securing the
regeneration of a vacant brownfield site, in close proximity to the town centre.
“The development will also regenerate a derelict brownfield site, which currently acts as a visual blight, providing significant green infrastructure and improving accessibility in the local area.
“It represents a high quality, sustainable form of development which will deliver much needed housing for Wakefield.”
Most of the properties will be three or four bed homes, though developers are aiming to attract a mixture of families, young professionals and older people.
Planning permission for the overall scheme was granted on Thursday morning, though individual parts of it will be put back before councillors in the future.
The development is not expected to be completed until 2027.
Castleford ward councillor Tony Wallis called the scheme “fantastic” and Coun Glenn Burton said: “We have a chance to do some something really, really special for Castleford as a town here.”
Concerns were expressed that the development could increase floodwater levels on neighbouring Lock Lane, which already affects people living in the area.
However, the council’s senior officer in flood risk management, Paul Maddison said plans would be put in place to mitigate the risk and that the effect would be “minimal”.
Coun Kevin Swift expressed doubts, saying: “Surely if we’re talking about a flooding risk, the sensible conclusion is that we don’t use that bit for housing.
“The vast majority of Wakefield isn’t subject to a flood risk.
“If we don’t allocate the site for housing, then you don’t have to bother will all these complicated things like evacuation plans.”
The plans were approved by an overwhelming majority, with no councillors voting against.