The city commission overseeing the former Treasure Island Naval Station approved a plan Monday to spend more than $1.2 billion to transform the 403-acre island and its smaller neighbor, Yerba Buena Island, into a self-sufficient community with 6,000 homes, a new ferry terminal and 300 acres of open space.

The seven-member Treasure Island Development Authority, appointed by the mayor, gave its support for a building blueprint that has been three years in the making.

The plan calls for nearly $500 million in private investment and $700 million in borrowing by the city through the issuance of bonds backed by property taxes collected from the island after development is completed.

The lead developer, Kenwood Investments, which is controlled by Democratic lobbyist and fundraiser Darius Anderson, is working with Miami-based home builder Lennar Corp. and local firm Wilson Meany Sullivan, which led the Port of San Francisco's Ferry Building restoration.

The developers plan to replace the former military housing and other structures with homes and retail and commercial buildings using "green" construction methods.

The developers would pay an estimated $40 million to the Navy for the decommissioned base -- part of their $500 million investment -- and would anticipate collecting $370 million in profits by completion in 2022.

The plan is scheduled to be introduced to the Board of Supervisors today and will likely be voted on by the end of the year, according to Michael Cohen, head of military base reuse projects for Mayor Gavin Newsom.

"I'm optimistic about the reception the plan will get from the Board of Supervisors because I think the development plan makes an overwhelmingly compelling case," said Cohen. "We're using private investment to create a 300-acre park in the bay and 1,800 units of below-market-rate housing without a penny from the city's general fund."

Some of the below-market housing units would be created by private developers, and the rest by nonprofit builders with backing from the city and other sources. Private builders would be required to sell or rent approximately 740 units at prices within reach of households earning at or below the median income in San Francisco -- which for a three-person household is $82,000 a year.

Renderings of the proposed new island village show a ferry terminal connected to a retail center as part of an urban core with a 40-story tower and hotels. Several residential neighborhoods would radiate from the core area and feature townhouses, flats and a 14-story residential tower.

To discourage driving on and off the island, the plan calls for most housing to be clustered within a 10-minute walk to the ferry and for a free shuttle to serve the neighborhoods. A congestion pricing scheme would levy an estimated $5 fee on motorists driving on and off the island during commute times.

Completed in 1938, the manmade Treasure Island is composed mainly of bay fill and is susceptible to earthquakes and flooding. As a result, it will require significant seismic stabilization, including a 50-foot-wide reinforced zone around the entire perimeter of the island.

Environmental contamination from the former industrial uses needs to be cleaned up, and the future neighborhood situated in the middle of the bay will need an entirely new utility and wastewater collection and treatment system.

The project must undergo a review of its impact on the environment and on traffic patterns and commerce in the area.

Moreover, as changes are made, details of a final agreement between the developers and the city remain to be negotiated and approved by the Treasure Island Development Authority, the Board of Supervisors and the mayor.

"We continue to have tremendous constraints that we will have to overcome, but our work to date shows a path of success," said Jay Wallace of Kenwood Investments. "It's a complicated project, but we have a critical path we can proceed upon to make Treasure Island a great place for future generations."