Up to 140 new homes will be built on a foot and mouth disease burial ground.
South Somerset District Council voted to back plans by developer Gleeson Strategig Land to build homes on Bowden Lane in Templecombe.
The developer submitted the plans for 140 homes and a community facility to the council in January.
Local residents spoke against the plans at a public meeting on Tuesday, saying the land was contaminated and the village was growing too quickly.
The site lies to the south of the existing homes on Bowden Road, with a new access point being created near the junction with West Street.
It would include two new children's play areas, a community hub and extensive planting and landscaping to provide an "aesthetically pleasing gateway" to the village.
The community facility could end up being used as a village hall, for providing retail space or relocating the existing GP surgery to a larger, more accessible facility.
Jeffery Carter, a professional builder who lives locally, said: "I strongly object to this application, it is disingenuous and lacking credibility.
"Chemicals such as caustic soda and lime were used to dispose of carcasses buried on this site during the foot-and-mouth outbreak in the late-1960s."
The council admitted there was "compelling anecdotal evidence" that the site had been used a burial site for animals slaughtered during an outbreak of foot and mouth disease in 1967.
However, under UK planning law, the responsibility for clearing up such sites rests with the developer and landowner, not the council.
Councillor Henry Hobhouse said the council had little choice but to approve the plans.
He said: "If we vote against this, it will go to appeal and we will end up having to pay for the developer's legal team if they win - and I think they will win."
After more than an hour's debate, the committee voted unanimously to approve the outline plans.
A reserved matters application, governing the detailed design and layout of the new homes, is expected to come forward early in the new year.