Admiralty Arch will be turned into a luxury hotel, flats and a private members’ club after Westminster City Council gave plans the green light.

Prime Investors Capital have been given permission to convert the space into a 100-bedroom five-star hotel. The company leased the building in October last year for 99 years in a move that will raise £60million for the Treasury.

Francis Maude, minister for the Cabinet Office Francis Maude, said: “The plans approved today will breathe new life into Admiralty Arch, transforming it from unsuitable office space into a publicly accessible landmark that everyone can admire and enjoy.

“Historical and architecturally significant buildings like the Arch shouldn’t be sitting empty in the Government’s estate costing £900,000 a year to run. Instead we’re raising £60 million for the taxpayer and working closely on every aspect with Prime Investors Capital (PIC), Westminster City Council and English Heritage to restore it to its former glory.”

Robert Davis, Westminster City Council deputy leader, said: “Personally I am delighted that this building will now see high quality public use.”

The development will see £600,000 go towards affordable housing, well below the “policy compliant” sum of £1million.

Originally designed as a ceremonial passage from Trafalgar Square towards Buckingham Palace, Admiralty Arch is one of London’s most recognisable landmarks.

The plans will see the Grade I-listed building renovated in keeping with architect Sir Aston Webb’s original drawings from around 1910 with many lost designs restored.

Construction will begin early next year and the hotel is expected to open its doors to the public in 2016.