The proposal to add more than 7,000 sq m to the Pentland Retail Park at Loanhead has been approved in principle by councillors in Midlothian.
Peel Developments is proposing to build four stores, with Argos and Marks & Spencer already earmarked as possible tenants.
However, the city council has called for a study to assess the impact on city centre shops before the full planning application is considered.
It also wants Midlothian Council to carry out a transport assessment to gauge the effect of the project on major junctions such as the Straiton Interchange.
Alan Henderson, Edinburgh's head of planning, warned that any expansion at Pentland could jeapordise the "vitality and viability" of city stores.
"The scale of the increase is of concern given that a much smaller scheme was previously refused due to impact concerns," he said.
The council is focused on supporting the city centre and has told prospective developers that it believes the number of out-of -town centres has reached saturation point. City council leader Donald Anderson believes more robust planning procedures are needed to protect city centre traders.
The issue has taken on more urgency in the light of plans for congestion charges, which could be introduced in Edinburgh in 2006 and which many stores fear could see shoppers deserting the city.
A similar scheme at the Pentland site was rejected 18 months ago on the grounds that it would hit trade in neighbouring towns such as Dalkeith and Penicuik. But Midlothian councillors believe the latest proposed development will attract major retailers.
Midlothian chief planning officer Mike Shiel said: "Our members believe it's not unreasonable for the residents of Midlothian to have the chance to shop at quality retail outlets of the type being proposed rather than have to travel longer distances to shop at similar outlets in centres such as Fort Kinnaird."