Bristol Water wants to build a £125m reservoir close to the existing facility to meet the future need for water in the area.
Sedgemoor District Council voted "almost unanimously" to approve the 9,400 megalitre reservoir, subject to planning conditions.
The firm said it welcomed the decision but there was "still a long way to go".
Plans for the new reservoir include a visitor centre, swimming and water sport facilities, as well as a cafe and picnic areas.
A spokesman for the company said "if built", it will not only provide a "much needed new source of water" in the county but be of "enormous long term recreational and conservation benefit".
"However, there is still a long way to go before any construction, as the investment must also secure regulatory approval from Ofwat," he said.
Plans to build a second reservoir near Cheddar in Somerset, have been given the go-ahead by the council.