Gillian Shephard, the Education and Employment Secretary, has given the voluntary-aided school permission to introduce selection nearly three years after criticising its admissions procedures.
She told the school either to stop choosing pupils through interview and recommendation from primary heads or apply formally to become selective. Critics complained that Blue Coat's ranking in exam league tables was unfair to other comprehensives because its admissions procedures amounted to covert selection.
But Peter Healey, chairman of governors, said the school received 500 applications for 120 places.
Mrs Shephard has taken more than a year to reach her decision to allow the school to go selective amid threats from Liverpool city council about the possibility of a judicial review.
It is now seeking counsel's opinion whether to pursue its complaints that selection at the boys-only school would have serious implications for equal opportunities - as girls would be denied a grammar school place - and could place the local education authority in breach of the Sex Discrimination Act.
Labour faced embarrassment a year ago when it emerged that Peter Kilfoyle, a member of the party's parliamentary education team, sent his son to Blue Coat. He claimed to have rejected an alternative school when it went grant-maintained.