The move came despite concerns the request came late in the annual-plan process, after the public was able to submit on the issue.
One councillor signalled his intent to study the use of the council's endowment fund, built up from property left to the city by early settlers, to pay for the upgrade.
At the annual plan deliberations yesterday, Cr Paul Hudson said the need for the work arose from recent work done on the toilets and the Regent Chambers. More work now needed to be done to comply with the Building Act.
Sprinklers were added to the front of the building, but not in the auditorium and back-stage areas, which meant the building did not meet the code of compliance.
The upgrade would include work on the counterweights and fly tower, dressing room and auditorium.
Changes to seating could mean part of the 1830-seat theatre could be partitioned off and used as an 800-seat theatre, solving a need that had been identified, and which some had been lobbying for.
The work would close the theatre for 8 months.
Dunedin Operatic had booked the theatre for Miss Saigon for September 2010, and the Otago Theatre Trust wanted to do the upgrade after that.
The trust wanted $1 million in the 2009-10 annual plan and $3.75 million the following year, and the trust would raise $1.7 million, of which it already had $300,000.
Council chief executive Jim Harland said the council could carry out health and safety work without consultation, and while a detailed plan had not been written, the council owned the building, and had to respond to health and safety issues.
Cr Bill Acklin asked why the fact the theatre trust needed $4.7 million from the council for the upgrade had not been raised with the council earlier, when those involved were obviously aware of it.
"If people have criticised the way we have consulted - or not consulted - on the stadium, they will have a field day with this."
Cr Richard Walls said the council should look at its endowment fund, and what it was endowed for.
Cr Hudson moved that the money, funded by loans, be included in the annual plan, subject to a detailed report to the council; the motion was carried.
Cr Hudson warned the council would have to work harder to keep down rates rises for next year, as they were "at an unacceptable level already".
