Homes England has been granted consent for 750 houses on the 120-acre site of the former Whittingham Asylum near Preston.
The outline planning application was put together by Barton Willmore and CampbellReith.
Around six acres is being set aside to facilitate the relocation of the Whittingham & Goosnargh Sports & Social Club, while the rest of the project is residential.
Another 3.7-acre plot will be safeguarded for the delivery of a primary school, while existing buildings on the site, including the grade two-listed St John’s Church, will be converted to residential use.
Around 54 acres of the masterplan will be used for green space.
At the time of submitting the application, Homes England, said the scheme would be phased with the first batch of 150 homes going out to market in the months after achieving planning consent.
The Whittingham Hospital site, near the village of Goosnargh and around five miles outside Preston, was built in 1873 and grew to be the largest of its type in Britain, hosting nearly 3,000 patients across a wide range of buildings. The hospital also formerly had its own rail link before it closed in 1995.
The site was acquired by Homes England as part of its 2005 Hospital Sites Programme, but has not been redeveloped owing to market conditions, planning issues, and infrastructure constraints.
It is expected the housing development will require significant infrastructure works including a spine road and the installation of sewerage works.
As well as CampbellReith and Barton Willmore, the professional team on the project includes JLL, the Vinden Partnership, The Environmental Partnership, Tuffin Ferraby Taylor, and Prime Transport. The team was appointed to the project in late 2017.