Christchurch City Council voted narrowly to borrow $24 million to fund a music conservatorium for Canterbury University.
The 7-6 outcome followed an hour of fierce debate watched by about 100 members of the public, most of them against the funding proposal, on Thursday.
Some shouted "shame on you" at councillors after the vote was passed.
The university asked council to use its double A+ credit rating to borrow the $24 million on its behalf, at a lower interest rate than the university itself would get.
The university would pay for the building over a 50-year lease period, thus costing ratepayers nothing.
Hundreds of submissions were made against the council's involvement, despite the deal being rates neutral.
The project has still to win resource consent approval. It will be built on land in the city centre leased to the university by the Arts Centre Trust.
But opponents are vowing to keep fighting the building project through the courts.
Save the Arts Centre says it will make a submission to an upcoming resource consent hearing, then fight in the Environment Court and through a judicial review if necessary to stop it.
The group believes the university should fund its own project and build the music conservatorium elsewhere.