“Developers have won their appeal to build on the so-called Topsham Gap.
Now opponents are worried about a “domino effect” that could lead to more developments.
Hundreds of local people attended a planning inquiry to voice their opposition to plans for a 60-bed care home, plus more than 100 homes for over-55s.
Critics said the development would swallow up green belt land between the city and old port of Topsham.
The Planning Inspectorate has now decided that Exeter City Council was wrong to turn down the application by Waddeton Park Ltd.
The council has six weeks to make a further appeal to the High Court.
Earlier this year hundreds of protesters joined the battle over plans to build on green space separating Exeter and Topsham during a crucial public inquiry.
Banner-waving protesters made their feelings known at the start of the inquiry over proposals to develop land known as the Topsham Gap.
It followed Exeter City Council’s failure to determine Waddeton Park’s plans to build a 60-bed care home and more than 100 homes on fields next to Topsham Rugby Club.
The developer says it would provide “much-needed” housing for the area’s ageing population.
But campaign group, Save the Topsham Gap, claimed the town has its own identity and the “gap” is the last piece of land physically separating it from the city.
Organiser Lily Neal, 56, of The Topsham Bookshop, said:”It seems to come down to tough luck Topsham”
“The inspector has accepted all the developers’ arguments and are only hope was that he would accept the idea of more harm than benefit – but he hasn’t
“He says it would only cause modest harm.
“The council have six weeks to appeal but I have my doubts i it is expensive and its is the ratepayers of all of Exeter who would have to pay.
“I have to say I am worried about a possible domino effect – what’s next?”
Campaigners were anxious stop Topsham becoming just one more suburb of Exeter and retain its distinct, independent and unique identity.”
The proposals go against the council’s local plan, which designated the site a strategic “green wedge” not suitable for development.
Planning inspectorate Jonathan Bore had said he would determine the plans based on the need for additional housing in the city, and the effect on Exeter and the landscape.