A state agency has rejected Hingham’s method of counting its affordable housing, and town officials are weighing whether to pursue the case in court.

In the meantime, the state’s decision clears the way for AvalonBay Communities Inc. to advance a 177-unit apartment project under the state’s Chapter 40B affordable-housing law.

The decision, issued Jan. 14 by the state Housing Appeals Committee, said that despite Hingham’s arguments, less than 10 percent of the town’s housing can be classified as affordable.

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In communities that do not reach that threshold, housing projects proposed under Chapter 40B have wide latitude to avoid local zoning ordinances, as long as at least 25 percent of the housing units are sold at what the state deems to be an affordable level.

Following the ruling, the town’s Zoning Board of Appeals is required to schedule hearings on the AvalonBay application, said Laura Burns, chairwoman of the Board of Selectmen.

The development, planned for an 18.5-acre site near the Derby Street Shoppes, has received harsh neighborhood criticism, with concerns ranging from additional traffic to strains on the town’s public works infrastructure.

The dispute between the town and the state mainly revolves around the housing at the Linden Ponds retirement community.

Under Massachusetts law, units in rental developments can all be counted toward a town’s affordable-housing inventory. For condos, only the number of units that are actually affordable can be counted. The town argues that Linden Ponds is a rental community, but state officials disagree.

While the town now is required to continue the vetting process with AvalonBay, the appeals committee decision means the town can move forward with a legal challenge.

Hingham previously went to the Supreme Judicial Court on this question, but was sent back without a ruling because the town had not gone through all the appeal processes, in particular, the Housing Appeals Committee, Burns said.

Burns said that selectmen had discussed how they will respond to the decision.

It is unclear when the project will go back to the zoning board. AvalonBay Vice President Michael Roberts did not immediately respond to requests for comment.