The development, in Rose Street Lane North, was given the go-ahead by members of Edinburgh City Council's development sub-committee on Wednesday.
Four local residents and a community council objected to the development which was initially described as a "unisex sauna" by applicants Skandi Leisure.
The firm later changed its description to an aromatherapy centre and sun bed solarium which caters for both sexes and allows the practice of naturism.
Objections received by the council's committee claimed the development would lead to "a clustering of unsavoury activities" in the area and attract "undesirable people".
They also claimed it would pose a threat to residents' safety, harm businesses and tourism and lead to the possible creation of a red light district in the New Town.
A report by planning officials pointed out that Rose Street was dominated by pubs, cafes and restaurants and was an area of constant activity.
'Red light fears'
It recommended that the addition of the "aromatherapy centre" would have no detrimental effect on residential property.
Planning Chair, Councillor Robert Cairns, said he was concerned with the "red light" fears expressed by the community council and local residents.
But he moved that the application be granted with the condition that it be for the authorised use only.
"We must give local people some reassurances that this committee is not granting a use which is illegal or in any way related to prostitution or a similar activity" he said.