Tenby's traffic ban has run on a trial basis for the past four years
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Residents and businesses in the centre of Tenby will be allowed unrestricted access to their shops and homes under a modified summer car ban at the resort.
The scheme, which has run for the last four years, will only operate during the school holidays and not throughout July and August as originally planned.
Pembrokeshire Council's cabinet made the changes following a public inquiry.
Planning inspector Clive Nield had said preventing people driving to their homes may breach their human rights.
The council intended making a permanent order banning vehicles from the walled area of Tenby for two months each year after four trial runs.
But following comments made by Mr Nield after a four day hearing earlier this year the cabinet agreed on Monday to the revisions.
Residents in the walled area whose name appears on the electoral role will be given permits allowing them to come and go as they please.
Permits will also be given to business owners, harbour users and people living on Caldey Island.
A core zone of Tudor Square, Lower High Street and Church Street will be kept traffic free except for emergency vehicles and weddings and funerals.
The new experimental scheme will run between 1100 BST and 1700 BST from 22 July to 3 September to coincide with the school holidays when the resort is at its busiest.
Mr Nield said something had to be done to control traffic in the town during the summer but said if the order had gone ahead as originally proposed it may have breached the residents' human rights.
'Happy community'
Council leader John Davies said: ""This is a reasonable way forward given the conclusions reached by the inspector at the public inquiry.
"The council has invested a lot of time and money on the pedestrianisation scheme in Tenby and we are anxious that this issue be resolved."
There are around 550 homes within the walled area and around 300 commercial premises.
Speaking after Monday's meting Richard Walker, chairman of the Tenby Walled Town Residents' Association said: "We are delighted that the council gas chosen to have another experiment addressing all the issues we raised four years ago.
"We have always wanted a pedestrianisation scheme but one with access for residents.
"Now we have a community which is happy."