Portsmouth City Council has agreed to loan the Pompey Supporters' Trust (PST) £1.45m so it can put together a deal to buy the club from Balram Chainrai.
The PST has offered Chainrai £2.75m for the club, including Fratton Park, but need a temporary bridging loan to help make up its offer for Pompey.
The Trust says it has raised £3m in pledges, with £1m on deposit already.
The loan comes with requirements such as the Trust obtaining the remaining £11.7m in parachute payments.
Other conditions include the club keeping their Football League membership, the Trust obtaining Fratton Park and the council receiving part of the £11.7m parachute payment as repayment for the loan.
At Thursday's meeting the PST chairman Ashley Brown, board member Mark Trapani and Julian Wadsworth from the Respect programme all gave presentations to the council supporting the bid.
The decision hinged on several factors but the impact on the local economy was a crucial factor with Conservative Councillor Donna Jones estimating the economic impact of the club is more than £300m.
"This has been a difficult decision, but if the council does not offer PST a loan then it is likely Portsmouth Football Club will not survive," said leader of the council Gerald Vernon-Jackson.
"This is a loan, not a gift or a blank cheque. The council will borrow the money and PST will have 13 months to repay us in full, with interest. No services will be affected as the money will not come directly from the current council budget.
"The financial impact of the football club on the city is huge. Livelihoods depend on the club surviving and thriving. The community projects the football club runs are hugely important to encouraging young people and supporting their potential and helping them through difficult times."
The club are currently in administration but were boosted on Thursday by the news that defender Tal Ben Haim had agreed a compromise agreement to leave the club.
Ben Haim had been on wages of £36,000 a week and the club now has just one senior player left on its books - midfielder Liam Lawrence.
Lawrence is also expected to leave the club meaning Chainrai can start the process of bringing Portsmouth out of administration.
But Birch says if Chainrai's offer for the club falls through then the PST is in pole position to take the club on.
Creditors of Pompey have already accepted his offer of two pence in the pound, but the PST has matched that offer and could do a retrospective deal with Chainrai.
"I wouldn't say the Trust are out of it," Birch told BBC Radio Solent.
"If Portpin did not complete, the Trust would be the fall back position. They are still in the game, no doubt if Portpin buy the club then negotiations will continue as the PST have put together a very credible deal.
"It would be a shame for that dissolve, I think the PST bid will continue and get stronger."
If the PST takes control of Pompey, local millionaire businessman Iain McInnes would become the new chairman of the club.