"The approval of this permit offers us a great opportunity to reimagine and redevelop Penn Station as a world-class transportation destination and allow time to relocate Madison Square Garden to a new and improved home," Council Speaker Christine C. Quinn, who is also running for mayor, said in a statement.
Penn Station and Madison Square Garden have a complicated history and have been in the same location only since 1968.
The original Garden was on Madison Square and was replaced on the same site by a building designed by McKim Meade and White, the firm that designed the original Penn Station.
A new Garden opened at Eighth Avenue and 50th Street in 1925, and was eventually replaced by the current arena.
The first Penn Station was known for its huge Corinthian columns and glass ceilings. The decision to raze it in the 1960s, replacing it with a utilitarian and mostly underground train station, caused an uproar.