Owners Darren and Lizzi Booth want to turn the 12-bedroom hotel, bar and Waterside restaurant on The Beach in Filey into five holiday apartments.
As part of the plans, two three-bed flats and three two-bed flats will be built and an existing single-storey rear extension will be demolished to make way for a four-storey extension that will house a communal stairway, lift, bicycle storage and a refuse bin room.
Five parking spaces will also be created, one dedicated for each apartment, and will include electric vehicle charging points.
A report prepared by Scarborough Council’s planning department said "the proposal seems to keep all the greatest features of the existing imposing building while sympathetically bringing it up to modern standards".
The planning application said that the change of use was brought about by the coronavirus pandemic and adapting to tourists' changing spending habits and demands. It added that as a result, the wider community will benefit from increased spending in shops, restaurants and pubs.
The Downcliffe was forced to close for 14 weeks at the height of the pandemic, which resulted in laying off staff and no revenue for between three and four months of the year.
It caused Mr and Mrs Booth to re-think entering the high-end tourism and private rental market, which will coincide with their plans to retire in early 2022 after running the hotel for 16 years.
It is not clear when the hotel is set to close its doors for the final time. Downcliffe House Hotel was approached for comment, but did not receive a reply.
Built as a Victorian house in 1840, the Downcliffe became a hotel in the mid-20th century and has received consistently good reviews.
It was voted one of the top 10 seaside hotels in Europe by The Independent and won a TripAdvisor Travellers' Choice Award in 2021, ranking it within the top 10 per cent of businesses.
Filey Town Council supports the project in principle but did highlight some minor concerns. National Highways and the Environmental Regulation Team did not raise any objections to the plans.
The hotel was previously listed for sale by estate agent Jackson-Stops for £2.3m in July 2018, which they described as a "once in a lifetime opportunity".