Asda could open a new supermarket in Cinderford in a year's time after a judge rejected the Co-op's request for a judicial review.
Judge Anthony Thornton QC said the Co-op's legal bid to overturn the district council's decision to grant planning permission for the new Asda store had 'no prospect of success'.
The Co-op had tried similar tactics with supermarket giant Tesco which wanted to open a store in the town and managed to keep them out following a 12-year battle.
The Co-op have until the end of this week to appeal.
Patrick Stones, managing director at Trilogy Developments, said: "Obviously we're pleased and I'd like to say well done to the Forest of Dean District Council for their perseverance.
"We will be meeting Asda later this week to discuss what we do next in terms of the development.
"We want to begin with site investigations as soon as possible as the legal proceedings have put us back by around six months. We've got a lot to do and we're currently looking at spring 2014 for the opening of the store."
Deputy Leader of the council Coun Brian Robinson said: "This is great news for Cinderford and is a very welcome endorsement of the council's planning procedures and policy.
"We believe Cinderford can accommodate an additional retail outlet and this marks another step on the road to the regeneration of Cinderford.
"The scheme will make additional contributions toward the town centre and building on what the council has already achieved we now hope to work closely with the Co-op to ensure that we create and maintain a thriving town centre."
District council chairman Norman Stephens said: "This is good news at long last. It gives the people a choice of where to shop and there should be less people leaving the area to do so."
The Judge's decision came hours before 40 people took to the streets of Cinderford to march in support of Asda's bid to build a store there.
The damp but determined bunch – which was formed as the Facebook group We want Asda in Cinderford – marched up to the Co-op's Dockham Road store where they were turned round by police.
They then moved back toward the Triangle as a heckler jeered them from the pavement before a police officer spoke to him.
One of the march organisers Amanda Watkins, said: "I'm a working mother and I joined this group because I want the freedom of choice over where I shop.
"I've been talking to the other group as we need to make things a bit friendlier than they have been. It is crazy for things to get so aggressive over a supermarket.
"We are concentrating on a letters campaign now and we will carry on while there is hope of a new store being built in Cinderford."
A spokesperson from a new group which has emerged, No Asda In Cinderford, said: "This group was formed to make it clear that the pro Asda group did not represent everyone, and to raise awareness of the potential dangers of Asda coming to Cinderford.
"We are nothing to do with the Co-op, and we are not pro Co-op.
"There are already two supermarkets in town and many independent shops which will be under threat if Asda comes here."