A 13-bed retirement complex with kitchen, bar area, community building and plant room will be built in March.
The site will be built on overgrown land next to the sheltered housing scheme Elliott Lodge in Elliott Road.
It was approved at a planning committee meeting at Fenland District Council (FDC) yesterday (January 29).
The proposal, by Snowmountain Enterprises, state: "One of the main objectives of this is to re-locate a poorly designed first floor community space at the far southern end of the site in the existing complex in Elliott Lodge.
"It will turn it into a ground floor space, that is modern, flexible, accessible to all with good levels of natural daylight in a more central location."
Councillor Kay Mayor said: "This will enhance the area and retirement homes are desperately needed."
A section 106 community donation of £112,000 will also be included in the scheme.
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