Bridgend county council wants to knock down Malc's Cafe in Rest Bay, to make way for the new modern facility.
Porthcawl Civic Trust Society has objected to the two-storey building saying it was "out of accord" with the area's character.
Councillors have backed it but said traffic plans must still be agreed.
The proposals were being considered by the council's development control committee on Thursday.
The council hopes the building - with public toilets, changing rooms, a new cafe/bistro, function room and covered dog walkers' area - will be used by water sports clubs.
Residents said the plans would increase parking problems, late-night noise and anti-social behaviour, and the height of the building would impact on the "unspoilt" appearance of the coastline.
The council said: "If successful, the water sports centre and cafe at Rest Bay will provide new high-quality facilities near the award-winning blue flag beach while establishing an iconic, contemporary attraction capable of supporting and developing sports and leisure activities in the area."
Approving the proposals, the committee has imposed a number of conditions in a bid to ease the public concerns.
The centre will not be allowed to operate after 21:00 in the evening and staff parking, turning area and delivery yard plans must be agreed.
The council said a traffic management plan for the development must also be submitted and approved before construction can get under way.

Solomona scored 40 tries in the 2016 season, including a record total of 40 in Super League.
Tigers chairman Steve Gill said in October that the 23-year-old Samoan was not for sale and would be returning to the club on 7 November.
BBC Sport understands Solomona has held talks with rugby union side Sale.
The Premiership club declined to comment on the story.

They'll headline the British Summer Time festival on 20 June.
The band, who got back together for a pair of reunion shows in the park six years ago, join Taylor Swift, Kylie and The Who on the bill.
Speaking at a news conference in a London Chinatown restaurant, frontman Damon Albarn joked: "I love it because I can cycle to work".
They'll be the only band ever to play Hyde Park four times after this performance.
Bassist Alex James says that "since we made our last record as a four-piece we have probably only done 20 gigs.
"So for me every time we play together it feels special but in order to keep doing it we need something news to do."
Blur are also working on their first studio album as four-piece in 16 years, The Magic Whip.
Guitarist Graham Coxon said they started recording in Hong Kong when a gig was cancelled.
He said: "we thought we'd put a few days, five or six days, to good use".
The album is influenced by the band's time in Far East.
Damon Albarn confirmed one song was about time he spent in North Korea: "it's my impression of the place, in a very abstract veiled way.
"When you listen to it is pretty self explanatory what it's about".
The singer also said it was nice to work with a basic set-up when they first started to make the album to see what they could create.
He told the news conference that "we didn't have much stuff so it was like recording when we first started doing stuff.  It was a really small studio, it was really hot and claustrophobic.
"We just went in there and knocked about some ideas."
The album will be released on 27 April.
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Plans to build a new water sports centre in Porthcawl have been approved, despite concerns it could spoil the coastline.
[NEXT_CONCEPT]
Castleford Tigers are to take legal action against winger Denny Solomona after he failed to return to the club for pre-season training.
[NEXT_CONCEPT]
Blur are heading back to Hyde Park with their first album in more than a decade.