SCOTLAND'S leading heritage watchdog has backed the controversial Caltongate development in Edinburgh city centre – just weeks before its fate will be decided by councillors.
Historic Scotland officials are supporting most of the key elements of Mountgrange's £300 million scheme in the city's historic Old Town.
The move has put the body at odds with both the Edinburgh World Heritage Trust and the Cockburn Association.
More than 300 objections have been lodged with the city council against the development, which would create a new five-star hotel, conference centre, bars and restaurants.
The scheme involves the demolition of one listed former school building, on New Street, and the partial demolition of another, a former hostel for homeless people.
Historic Scotland has decided not to object to either proposal, and offered its backing for the scheme, which it described as "generally acceptable".
Previously, the developer had wanted to bulldoze a block of tenements further down the Royal Mile and create a pedestrian link to a new public square and commercial quarter.
However, the proposal triggered a huge outcry and last year it emerged that an alternative option was being drawn up which would see two new arches created for the "breakthrough", with new flats built above.
In its official submission to Edinburgh City Council, Historic Scotland has said "significant progress" has been made by the developer to address previous concerns.
Principal inspector Andrew Martindale said the body was content to allow the council's planning committee to decide whether the economic arguments justify the demolition of the former school building and all but the frontage of the old Sailor's Ark building.
A spokeswoman for Historic Scotland added: "One of the historic characteristics of the Canongate, a key part of the Edinburgh World Heritage Site, is the sense of enclosure that the existing buildings create.
"We've always therefore raised our strong concerns over the proposed full height breach and greatly welcome the replacement by a pended passageway."
Manishe Chande, chief executive of Mountgrange, said: "We're pleased that Historic Scotland recognises the lengths to which we have gone."
However Julie Logan, spokeswoman for the Save Our Old Town campaign group, said: "We don't believe Mountgrange have made the case for this hotel development at all."