Lochalsh and Skye Housing Association had their proposals for the former Mace shop site rejected by Highland Council’s north planning committee in October.
However, the Scottish Government’s directorate for planning and environmental appeals says the development should go ahead.
In a judgement issued on Monday Frances McChlery, the reporter appointed by Scottish ministers, said it “would be of significant benefit to the visual appearance of the village to have the site redeveloped.”
Planning officials had recommended the development be approved, but the main area of concern for objectors, and local councillors, focused on a lack of parking in the village.
The report acknowledged that parking was constrained in Kyle, but did not consider that the impact on parking or congestion would justify refusal.
Parking for the development will be provided by reconfiguring the car park near the Lochalsh Leisure Centre – 125 metres away – to create 12 new spaces.
Network Rail’s continued operational use of the Douglas Row car park was a condition included within this week’s judgement.
The plans had been backed by the Kyle and Lochalsh Community Trust, who saw them as a key strand in the regeneration of the village. Alongside the flats, the new building will house up to three new retail units, transforming what is currently a dilapidated corner of Kyle.
It is believed to have been the first time the LSHA had taken an appeal to the Scottish Government, in a bid to have a Highland Council ruling overturned.