Derry City and Strabane District Council planning committee has unanimously approved the demolition.
The club was forced to leave the stadium following severe flood damage in 2017 and was unable to return after an infestation of Japanese Knotweed.
The team, which plays in the NIFL Championship, now hosts home fixtures at Derry City FC’s Ryan McBride Brandywell Stadium.
The floods in August 2017 saw almost two-thirds of the north west’s average monthly rain fall in a single night.
In November 2018, the club was told it would be “very difficult to get flood insurance” for the Riverside Stadium, which sits on the banks of the River Faughan, following the 2017 floods.
The football club applied to the council to have the stadium demolished in February 2022.
Founded in 1905, Institute FC moved to the Riverside Stadium in 1980.
The club entered then into a 25-year lease with Derry YMCA so they could play their home games at the site.
In a statement, Institute FC said it was “a sad day for the club and its supporters” but one that “marks another significant milestone towards achieving the aspirations” in future development plans for the club.