Red Apple Associates Ltd has been granted permission to run a sexual entertainment venue (SEV) at Jessop House in the town centre.
The venue, which welcomes up to 500 customers a night, is owned by Steven Burrows and operates as Eroticats.
It opened during Cheltenham Festival in March this year and the green light has now been given to open for 17 nights next year after each race meeting at the track.
The application divided opinion with 50 letters sent in support of the scheme and more than 35 people objecting.
It was granted planning permission at a meeting of Cheltenham Borough Council after members said they could not take a moral stance on the issue.
In making the decision, councillors said the venue could not be held responsible for the behaviour of the tens of thousands of people that go to the races each day of the Cheltenham Festival.
Alwyn Barry, senior pastor of Cambray Baptist Church, said it was “much more offensive than placing a pub immediately opposite an Alcoholics Anonymous venue” and described it as “deeply hurtful” to have such a business so close.
Mr Burrows said the venue has between 400 to 500 customers each night and will operate as a cafe during the day.
He said police had no objections and described it as a “highly regulated area” and rejected claims it would affect people going to church.
