A decision to double the size of an historic Warwickshire village and carve a road through green field land was shunned by residents yesterday.
But the plans, which will see up to 700 homes and a relief road built in Shottery, has meant development proposals for other green field sites will not go ahead.
The village on the edge of Stratford-upon-Avon was chosen as the ideal location to build a proportion of the 4,000 homes the district council needs within the next six years to fulfil Government targets.
At the same time, a road serving the new homes would also act as a congestion-busting route to and from Stratford, planners said.
Shottery, which lost its post office a few years ago and has few amenities, currently has about 900 homes and residents fear the plans will ruin the hamlet's character.
The development will include the creation of a doctor's surgery, primary school and shops.
While residents have vowed to fight the plans, the decision has meant housing proposals for green field sites in other parts of Stratford will be shelved.
In Bishopton, speculative plans for 500 homes between the Northern Bypass and Bishopton Lane were rejected by a Government inspector.
And a request to built up to 1,000 homes to the south of the River Avon between Loxley Road and Banbury Road were also dismissed as part of the public inquiry into the local development plan.
However, up to 90 houses will be built at the Egg Packing Station at Bishopton Lane and a further 100 have been recommended at Kipling Road.
Paul Harris, senior planner at Stratford District Council, said: "There are concerns among Stratford residents that the town has had to take a lot of development recently and it shouldn't take any more but the structure plans set out by the county council says Stratford should take most of the houses.
" The inspector has restricted a whole load of other sites and that does give certainty right across the district where development should take place in the future.
" There were about 100 sites promoted across the district by developers, mostly for residential development, and a lot around the rural sites were dismissed."
James Philpotts, from the campaign group Residents Against Shottery Expansion, said the group will fight on.
" This is not a fait accompli. An inspector's report is always open to challenge."
Martyn Luscombe, chairman of RASE, added: "Traffic congestion in town will not be relieved by moving incoming traffic from one road to another. A much more radical vision is required than an access road masquerading as a by-pass."
English Heritage and the Shakespeare Birthplace Trust, which own Anne Hathaway's Cottage, had backed the plans.
Alan Taylor, inspector of historic buildings at English Heritage, said: "From a conservation view, English Heritage recognises that construction of a western relief road could bring major benefits to the Shottery conservation area and the immediate facility of Anne Hathaway's Cottage by removing tourist and through traffic, provided it was clearly linked to road closure of Cottage Lane."