Dwr Cymru Welsh Water wants to turn Llys y Fran Country Park and reservoir, near Haverfordwest, into an attraction which would include an interactive water playzone and a water sports activity centre and cycle hub.
Pembrokeshire County Council’s planning committee gave the go-ahead to the plans this week.
The first phase of the scheme includes new outdoor activity and information centres and a building for water-based activities.
Permission has also been granted for a bike skills area, featuring mounds, banks, dips and gravel tracks, along with camping and caravan pitches, enhanced parking and landscaping.
Organisers are aiming to turn Llys y Fran reservoir into one of the key tourism projects in the region in a bid to attract both residents and visitors from further afield.
A spokeswoman for Dwr Cymru Welsh Water said: “We welcome the decision by Pembrokeshire Council’s planning committee, which marks a key milestone in our plan to develop Llys-y-frân into a first class tourism destination.”
The £4m development was subject to Dwr Cymru obtaining additional funding. Visit Wales is also working on the project at the 350-acre site.
Sian Robinson, from Dwr Cymru Welsh Water, said: “Our aim is to make Llys y Fran a first-class tourism destination in which to enjoy watersports, the playzone, angling or cycling, walk, learn about wildlife and the reservoir or simply sit and enjoy the beautiful surroundings with an excellent coffee.
“The plans represent an opportunity for Llys y Fran Reservoir to become an exciting, vibrant visitor attraction that will complement other attractions in Pembrokeshire and bring benefits to the local rural area.”
Welsh Water says it is committed to encouraging access and recreation at its reservoir sites.
Last year, hundreds of thousands of people visited Llys Y Fran, Elan Valley near Rhayader in Powys, Llyn Brenig near Denbigh, and Llandegfedd near Pontypool.