Councillors have given the green light to the plan from developers the Seventy Group to turn it into a five star, three-floor, 32-bedroom hotel, with roof terraces, while retaining the B-Listed building's famous exterior.
The plan aims to generate about 80 new full and part-time jobs, with additional employment generated indirectly with suppliers to the hotel.
A council statement said the move by the development and control committee meant the application was supportable in planning terms.
Whether the project was financially viable was not a matter the committee could consider in deciding an application.
It said: "In light of this decision, the full council will now consider how the developers can be given the opportunity to prove the financial viability and long-term economic impact of their proposal. The application to demolish City Hall will not be progressed until this has been considered."
The Seventy Group grew out of Wilson Homes, which had been building houses in and around Kinross since 1999. But the diversification into commercial, retail and tourism projects the directors created the Seventy Group.
It has appointed Edinburgh-based Simpson and Brown, conservation architects, to design the hotel.
Other amenities are to include a restaurant, bar, banqueting facilities and outdoor terrace area.
The plans state: "The existing balcony seating area within the main hall is proposed for removal to divide the main hall into the proposed three-storey bedroom accommodation, with the accommodation positioned to take account of existing window positions."
Planning officers recommended that councillors approve the application.
It could represent the beginning of an end to almost a decade of agonising over what to do with the building, which had been a musical venue since 1911.
It hosted everything from Gaelic Mods to Margaret Thatcher's first speech as Prime Minister to the Scottish Conservatives in 1979.
However, with the opening of the new Perth Concert Hall in 2005, the City Halls largely fell into disuse.
In May 2012 Historic Scotland, acting for Scottish ministers, blocked the application by Perth and Kinross Council to take the building down to create a £4.4 million civic square.