The £14m-plus project will close the south section of King Edward Street to create a large, new public space which, at just over 3000 sq m, would be larger than Aldgate Square.
The plan will transform the streets and public realm between the old Museum of London site and St. Paul’s Underground station.
Architect LDA Design has been working with the City of London and with Panorama St Paul’s, the new mixed-use building on the eastern side, designed by Kohn Pederson Fox.
New King Edward Square will contain the Grade I listed tower and ruins of Christchurch Greyfriars.
Chairman of the City of London Corporation Planning and Transport Committee, Shravan Joshi, said: “I am delighted that we have been able to approve the St Paul’s Gyratory proposals.
“These works will greatly benefit the cultural offer of the Square Mile, by creating a corridor for pedestrians from the Tate Modern to the London Museum.
“It means we can enhance this public space in line with our Destination City policy to make the Square Mile a desirable, safe and inclusive visitor destination.”