The council has decided to proceed with a £4.6 million extension to Shetland College to secure almost £2 million in European funding.
Building work was approved by councillors 18 months ago but had been under review while possible savings in running costs were identified.
The so-called “phase three” development, described by college director Professor David Gray as “absolutely crucial”, will now go ahead.
Prof Gray said: “Shetland needs to ensure that its population have the ability and opportunity to be educated in the islands rather than having to leave, as many never return, and to obtain the skills necessary to meet needs in the coming years from industries such as renewable energy, oilfield decommissioning, construction, creative industries and tourism.”
With the growth in student numbers – by 1,000 in the year to 2010/11 – accommodation the NAFC Marine Centre, Train Shetland, the Anderson High School and Islesburgh Community Centre has been used.
The £4.6 million cost is being met by the European Regional Development Fund (£1,809,000), Shetland Islands Council (£2,013,000), the Scottish Funding Council (£500,000) and Shetland College itself (£300,000).
Chairman of the college board Allan Wishart said: “The decision to go ahead with this extension was taken 18 months ago by the Full Council and despite, indeed because of the difficult economic conditions we face, it is essential that we maintain that commitment to the educational future of Shetland.
“This extension is a crucial investment in our economic future, one that must go ahead immediately to take advantage of European funding and I congratulate Professor Gray and his team on identifying ways to save money in running costs. The responsible and wise decision is to build this much needed extension.”