Supporters of the plan to lengthen the tram line by 2.8 miles (4.6km) say it is needed to match the city's population growth.
This is a crucial decision for Edinburgh...I firmly believe the tram project is in the best interests of the city's current and future residents...Councillor Lesley Macinnes, Transport Convenor, The City of Edinburgh Council
Works should be completed by 2022 and operational in the first quarter of 2023. The project was approved after a vote at the full meeting of Edinburgh City Council.
The final business case for the project states it will cost £207m, including a contingency fund. In the first year of operation, the council predicts 16 million passengers will use the line.
Paul Tetlaw, of transport lobby group Transform Scotland, said: "This will serve a key transport corridor and boost development in the city creating more sustainable travel patterns. Edinburgh's initial tram route has been a great success, it has consistently outperformed passenger projections..."