The Irish Football Association can now build the stadium and two new stands to the south and east of the ground in south Belfast.
The total cost of the project is estimated at £29.2m - £25.2m of which is being funded by the Northern Ireland Executive.
The south and east stands will be rebuilt first, followed by the refurbishment and extension of the north and west stands.
The stadium is due to to be completed by June 2015.
Planning permission was granted within 11 weeks of receiving the application, which is the fastest ever turnaround of a major planning application.
Sports Minister Carál Ní Chuilín said that the announcement is a key milestone in the development of her regional sports stadiums programme, which follows the Executive pledge of up to £110m of funding for the redevelopment of Ravenhill, Windsor Park and Casement Park.
The granting of planning permission today highlights the excellent progress being made by the Irish FA, but more importantly shows how Government working across departments with a common objective can deliver for the people here.
Sports Minister Carál Ní Chuilín
"We now move on to appointing the construction operators to come in and final design to build the stadium," IFA president Jim Shaw said.
"The national football stadium plans are truly impressive and I know that, once the redevelopment project is complete, Windsor Park will be a stadium which we will all be proud of."
Minister Attwood said the move was a "tremendous boost for football and sport".
"This ambitious, exciting project is important in sporting terms to everyone in Northern Ireland and will also create employment opportunities for local people, particularly during the construction process," he said.
"This is why I made sure that we were in a position to turn it around quickly. My officials worked with the project team and key consultees for months before the application was submitted, clearing any hurdles. This ensured a quality application and therefore a speedy process."
Mr Attwood added: "The local community were also very much involved before I made my decision. I asked the Irish FA to extensively engage with the local community before they submitted their planning application.
"This they did, meaning that local people had a say in the design of the stadium."
Welcoming the announcement, Ms Ní Chuilín said that the Irish FA is now able to create a "modern stadium to cater for the needs of the whole community".
She added: "While the modernisation of Windsor Park represents a huge boost for football fans, this project and the others at Ravenhill and Casement are also about building community foundations and providing a catalyst for the regeneration of the areas around the stadiums.
"All of the stadium projects will bring benefits to local communities in terms of job opportunities during and post construction, as well as providing wider social benefits in areas such as health and well-being."