The eco-town bid, which will be finally decided upon early next year, could see 5,500 homes and new infrastructure built in the town.
The Government's announcement that Whitehill and Bordon is a suitable town was made as part of the draft plans for eco-towns, published on Tuesday.
The new document grades the potential eco-towns and their suitability: "A" is awarded to sites that are "generally suitable for an eco-town"; "B" to towns that are "suitable, subject to planning and design objectives", and "C" to "locations only likely to be suitable as an eco-town with substantial and exceptional innovation".
Whitehill and Bordon was given a "B".
The only one of the proposed 12 towns - from which up to 10 will be selected to become eco-towns - given an "A" award was Rackheath in Greater Norfolk. A total 10 towns were classified as "B" and one town was given a "C".
Following the news, Will Godfrey, chief executive of East Hampshire District Council, said: "It is great that Whitehill-Bordon has been shortlisted as one of the possible sites.
"I have every reason to believe that the town will be given eco-town status in the new year - and residents will benefit from better facilities, better infrastructure and better opportunities.
"The Green Town Vision has been given huge public support and we are striving for eco-town status because this is a way of delivering it."
Portfolio-holder for Whitehill and Bordon, district councillor Ian Dowdle, said: "This is marvellous news. Just one of the 12 towns got an 'A' and I'm confident that we would have scored a high 'B'. I think we're doing really well. The eco-town bid is constantly moving forwards, and this is just one study.
"Things are changing so quickly that the Government will continue to assess and evaluate our suitability to become an eco-town. It is a very positive result though, and one to be proud of."
However, the news has not been welcomed by all, and concerns about the level of proposed housing are still being raised.
The Royal Society for the Protection of Birds (RSPB) has announced that, although in favour of eco-towns in general, the proposed new build at Whitehill and Bordon will threaten the sensitive ecological areas in the town. It is thought that, as thousands more people will use the common and heathland areas for recreation, threatened birds like the Dartford warbler, the nightjar and the woodlark will be disturbed.
Simon Marsh, the RSPB's head of planning and regional policy, said: "We broadly welcome the standards and targets set out in today's draft policy, which sit well with the RSPB's vision for eco-towns.
"They must demonstrate the highest environmental standards and should protect and enhance the wildlife around them.
"However, the site at Bordon remains a fundamental concern because of the expected impact on designated wildlife sites."
The Campaign to Protect Rural England's (CPRE) Hampshire branch has also been monitoring the developing situation in Whitehill and Bordon in the light of residents' needs and views and the need to protect the important environment of the area.
John Venning, chairman of CPRE Hampshire, said: "We are trying to contribute constructively to the discussion about the future of Whitehill and Bordon - the only one of the famous eco-towns for which the local people have any enthusiasm.
"There are some very serious difficulties involved in protecting the immediate surroundings and in making sure the place really is as green as it needs to be. We want to help find the solutions if we can."
Edward Dawson, CPRE's director for the South East, said: "The South East remains under pressure for eco-towns following the announcement by housing minister Margaret Beckett.
"Three or four major sites are proposed by the Government for the region, out of 12 sites in all."
In announcing the publication of the draft plans, Mrs Beckett said: "I believe it is vital we get the locations for these eco-towns right, and the shortlist has been refined to reflect the results of the most detailed assessment to date on these potential locations.
"But I do not expect all of these locations to go forward - the eco-town standards are tough and I think some of these shortlisted schemes could struggle to meet them.
"Everyone has the opportunity to have their say on these proposals, both now and in the future when planning applications are received."
The consultation includes a draft planning statement on eco-towns, which sets out the standards that communities will have to meet.
An eco-town will have to be carbon-neutral across the whole settlement and give up 40 per cent of space to green areas.
The new document lays out the planning policy, eco-town standards and the development and management of the projects. To view the latest plans in full, visit the website address http://www.communities.gov.uk/housing/housingsupply/ecotowns">www.communities.gov.uk/housing/housingsupply/ecotowns.