Planning permission was granted to knock down the existing grandstand at Meadowbank Stadium and redevelop the sports centre as part of a £47m scheme.
Councillors also agreed to planning permission in principle to develop the rest of the Meadowbank site for mixed use including housing and commercial premises.
But there are questions around how the sports centre will be paid for.
A senior council officer confirmed the sports centre revamp will be partly funded by selling off assets in the mixed-use development of the site – while a £5m bid has been submitted to SportScotland.
Lead council officer for the Meadowbank sports centre project, Crawford McGhie, said: “It’s well documented that the financial strategy for the new sports centre relies on capital receipts from the proposed mixed-use development.
“For the project team, securing planning permission is a big milestone. We have already committed about £1.8m of resources, so to lose all of that would be devastating for the project team.”
But councillors agreed to start the mixed development masterplan with a “blank sheet” after the council’s housing services manager Elaine Scott was forced to apologise to residents and groups for a flawed consultation. Campaigners believe the fresh start means the authority has no idea how many homes will be built and how much money it will generate.
Former vice culture and communities convener and ward councillor for Meadowbank, Cllr Ian Campbell, said: “We basically cannot fund the stadium without the sale of some of this land – some of which we are making into low cost housing.
“The sale of this land will facilitate a new facility for the city and the community. This land, if the consultation is done properly and robustly, can provide a better facility than is there at the moment.”
The council has not put forward the number of homes to be built, and will instead ask the public what they would like the development to look like.
Ward Cllr John McLellan said: “Even with the maximum housing density and commercial sell-off originally envisaged, there was still a gap in the budget so clearly any reduction in projected receipts will have a significant impact on the financial plan.”
Save Meadowbank campaigner Heather Peacock, believes the project now has a £27 million black hole. – with no indication of how much housing will be built.
She said: “This is clear in documents submitted in support of the planning application.
“The last update provided to councillors also shows the stadium re-build cost of £46.9m relies upon £27.7m from housing and commercial development on the other half of the site. The decision to go back to the drawing board is a welcome one but it now means the council has to find £27.7m from other sources.”
A city council spokesperson said: “The council has granted consent for a fantastic new sports centre and agreed the principle of mixed use development on the site.
“A report on funding of the sports centre will be presented to the council after the summer.”