Manchester City Council confirmed that a planning application to add up to 14,500 extra seats at the Etihad has been approved.
The Premier League club want to increase both ends of the 47,670-capacity arena by 6,250 and add up to 2,000 additional seats around the pitch.
City made public their proposals for the stadium last summer and a formal planning application was made to the council in November.
The increased capacity will make the Etihad Stadium the second largest in the Premier League behind Manchester United's Old Trafford.
It will be the club's second major construction project in quick succession following the building of the £200m City Football Academy adjacent to the
The CFA, which will become the training base for all the club's teams and house medical and accommodation facilities, is due to open later this year.