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.
Plans to build a new water sports centre in Porthcawl have been approved, despite concerns it could spoil the coastline.