The City of Edinburgh Council (CEC) has approved an outline planning application for the £850m transformation of a 13-acre (5.3-hectare) site in the heart of the city.

Under plans for the new St James Quarter, the existing 1970s St James Shopping Centre and adjacent New St Andrew's House will be demolished to make way for a new retail and leisure development. A new 150-bedroom luxury hotel, an apart-hotel, restaurants and new public spaces are included in the proposals, which have been put forward by the site's owner, Henderson Global Investments (HGI), as well as a new multi-level retail 'galleria'.

Designed by Building Design Partnership and Alan Murray Architects, it is hoped that work can get underway on the redevelopment in 2011, with an anticipated completion date for the whole scheme of 2016. Myles White, fund manager of HGI's UK shopping centre fund, said: "The sheer scale and scope of our proposals demonstrate the long-term commitment to providing a world-class, retail-led mixed-use quarter in Edinburgh – and one which will make a positive difference to a city of global stature."

Jenny Dawe, CEC leader, added: "The decision shows we can work positively with investors to create cutting-edge retail and housing projects, which fit well with our historic and beautiful city centre. "We have ambitious plans for Edinburgh, and the new St James Quarter due for completion in 2016, will play an important part in these."