Liverpool Council planners agreed a blueprint to change the Bridewell prison on Cheapside, off Dale Street, into housing for students.
More than 100 students will live in the old cells.
Built in 1857, the Bridewell has stood empty for more than a decade. Previous bids to use the building have failed as the building is listed and major changes to the outside are not allowed.
Student accommodation is one of the few viable uses for the former prison, says architect Adam Hall of Falconer Chester Hall.
The windows are small, but planning regulations say student housing does not have to have the same amount of light as other homes, a rule that stops turning the Bridewell in to flats.
Concerns were raised by neighbours, who said more local student housing could create nuisance and noise. They were reassured that a management firm will be on hand 24 hours a day.
Meanwhile, in Durham, a landlord has seen his plans to put students behind another bar – this time in a pub converted to a house in multiple occupation (HMO) - dashed.
Bill Free Homes had already converted the former Britannia Inn pub in the city into two HMOs, one with four bedrooms and one with six.
The firm then wanted to add two bedrooms in the attic, extending the six-bed property to eight beds, but was refused by councillors at Durham County Council on recommendation from the planning officials.
Neighbours said the extra bedrooms would make parking problems worse and damage the character of the area.
Permission for the 10-bed HMOs was granted in 2010, but a 12-bed application had been rejected in 2008.
Councillor Mike Dixon said the council is seeing a lot of applications looking to vary planning permission already granted. He questioned whether this method was being used to “slip through” at a later time plans that were previously rejected.
