The future of King Edward VII hospital in Midhurst remains in the balance today, despite approval for an £18 million development project.

Thousands of campaigners were given hope last night as Chichester District Council voted by 22 votes to 19 in favour of a controversial venture to revitalise the private King Edward.

Under the scheme, the Grade II listed main building would be converted into flats and more than 100 houses built in the grounds.

The development will include a 134-bed replacement hospital, specialist neurology unit, health club and 400-space car park.

But the chances of the hospital surviving remain in doubt as the decision is expected to be called in within the next 28 days by Secretary of State John Prescott.

The site is in an area of outstanding natural beauty and earmarked to form part of the proposed South Downs national park and a Government inquiry could mean a delay of up to two years.

If this happens, liquidators say they will not be able to keep the hospital going and it will close anyway, leading to the loss of more than 300 jobs Shay Bannon, the liquidator responsible for the hospital, said: "The King Edward VII Hospital lives to fight another day.

"We have crossed the first two hurdles and while we wait for the final decision we know that the high standard of healthcare expected at the hospital is continuing, and that over 300 jobs are a step closer to being saved.

"This is great news for all the people who live in and around this area who have fought and are continuing to fight hard to save the hospital."

Planning officers had recommended that the proposal be rejected.

They said the plans were an intrusion in the area and there was no convincing evidence there was a long-term need for the hospital.

The Sussex Downs Conservation Board is among those opposed to the plans and members of Chichester District Council heard 32 speeches from members of the public - 13 from objectors and the rest from supporters - before coming to their decision at a special meeting dedicated to the application.

Objector Andy Stallon said: "We are not just dealing with a rural area, we are dealing with an area of outstanding natural beauty, a national park, an historic garden and listed buildings.

"Exceptional and compelling circumstances are required to overcome these designations, and we do not believe this difficult test has been passed."