Voters approved a tax measure to raise $62.5 million for the project. The approved funding would cover about half of the cost of the system. The rest of the money needed is expected to come from federal grants.
The Los Angeles City Clerk said that 73 percent of voters approved the funding, which is more than the two-thirds majority needed.
The trolley system would run on a four-mile Broadway-to-Figueroa loop that includes the Walt Disney Concert Hall and Staples Center. It's planned to run 18 hours a day, seven days a week.
Project backers hope construction can begin by the end of 2014 and be complete as early as 2016.
Proponents say it's a major step in downtown Los Angeles' renaissance.
"We're predicting that there will be an addition $1 billion in development, about $47 million in additional revenues to the city and more spending by tourists, so this is all around a great win, not only for downtown L.A. but the city of Los Angeles," said Los Angeles Councilman Jose Huizar.
The system is expected to generate about 9,000 new jobs.
The funding approved by downtown homeowners and businesses will be costly, opponents say. The new tax can add up to a few hundred dollars per year for downtown homeowners, while hotels could pay hundreds of thousands.
City News Service contributed to this report.