The designation was awarded to Bishop's Castle following an application from the town council to Shropshire Council.
It means a Neighbourhood Plan can now be formulated, setting out its development strategy.
Councillor Robert Macey, portfolio holder for housing and strategic planning, said: "They are not seeking approval for the content of the Neighbourhood Plan, but that it is a suitable area for it to be prepared for.
"It is the role of Shropshire Council to formally designate the area.
"If it is designated, it will allow Bishop's Castle Town Council to continue with drafting its Neighbourhood Plan."
The town council made the application to Shropshire Council in May under the provisions of the Town and Country Planning Act 1990.
In line with regulations, Shropshire Council consulted on the proposed area for four weeks between June 7 and July 5.
Councillor Macey said eight responses were received to the consultation, none of which objected to the principle of identifying the proposed Neighbourhood Area.
He said the designation would help the council deliver more housing for local people, and stressed the need for the Neighbourhood Plan and Shropshire Council's Development Plan to complement each other.
When the plan is completed it will go out to public consultation. This will be followed by a referendum in the town.
The town does not currently have a unitary councillor following the resignation of Councillor Jonny Keeley.
Councillor David Turner, who represents Much Wenlock, said: "I endorse everything Councillor Macey has said.
"In the course of the last eight years, Bishop's Castle electors have had to go to the polls on no fewer than five occasions.
"But I look forward to them going to the polls again next spring to vote in this referendum."