Developers will be able to build housing, hotels and restaurants on 272 acres of prime national forest land just south of the Grand Canyon under a plan endorsed today by federal officials.

The $330 million Canyon Forest Village project in Kaibab National Forest, a gateway to the canyon, will include 1,270 hotel rooms and 270,000 square feet of retail space, the equivalent of four large department stores. The project also involves developing 20 acres to house people working at Grand Canyon National Park.

"Free enterprise in this region is alive and well," said Eleanor Towns, Southwest regional forester for the U.S. Forest Service, which approved the plan.

Not everyone is so happy.

Several area businesspeople and politicians have threatened to sue to stop the development. Locals fear a major commercial center will cut into their profits and threaten ground water supplies.

"When you add a Canyon Forest Village to the mix of an already fragile tourism economy, I think you can do significant damage to a community like Flagstaff," said Rick Lopez, city councilman in Flagstaff, 80 miles south of the canyon.

Towns said Canyon Forest Village would better serve tourists, help address a housing crunch in the region and help control development. The Forest Service traded the project land along U.S. 180 for 2,220 acres scattered throughout the forest that she noted could have been developed without any promises the environment would be safeguarded.

Project developer Tom De Paolo and his investors wooed local environmental groups and tribes into supporting Canyon Forest Village by promising to transport Colorado River water by train and pipeline from Arizona's western border instead of depleting ground wells in the park.

Grand Canyon National Park Superintendent Robert Arnberger said the park needed to look for outside solutions to its problems. Living space is so scarce at the park at peak times that many of the 3,500 residents are forced to cram into old, broken-down trailers and tents.

The Forest Service's decision ended five years of analysis and public wrangling over how to develop the national forest and who gets to benefit from it.

Officials with the Grand Canyon Trust, an environmental group, applauded the Forest Service's decision.