The Udny Arms in Newburgh will reopen with 12 en-suite rooms and manager’s flat, while an existing annexe would be demolished to make way for five terraced townhouses.

The proposals had been deferred to establish how neighbours would be affected by the new development. Planning permission was delayed in June while council officers investigated whether the three-storey townhouses would cast any significant shadows in the area.

But this week members of Aberdeenshire Council’s Formartine area committee agreed with planners recommendations and gave the project their approval.

A report by Stephen Archer, the director of infrastructure services at Aberdeenshire Council, recommended the councillors allow planners to grant the approval under delegated powers.

He said: “The Udny Arms Hotel has been a long established facility within the centre of Newburgh and its retention and refurbishment to reopen as a hotel and eatery are support by policy and welcomed by the planning service. The redevelopment of this site for a mixed use development will allow this site to become a positive attribute to the centre of Newburgh, regenerating this site.

“This proposed development not only allows for an existing business and local facility to reopen, but contributes to the variety of house types that could be on offer within the village.”

The hotel closed in 2013 for significant renovation work. The bar and restaurant reopened in late 2013 and the hotel in February 2014, but the function suite remained closed.

The premises, including the bar and restaurant, were put up for sale in September 2014, before being sold to ECS Investments Ltd in March last year.

A statement from ECS said: “The proposals would reduce the scale of the hotel and refurbish the original buildings, in order to provide a five-star boutique hotel.”