Italian courts breached its obligations under international law by allowing civil claims in local courts for Nazi war crimes compensation, the UN's highest court ruled Friday.

"The court therefore holds that the action of Italian courts in denying Germany immunity... constitutes a breach of the obligation owed by the Italian state to Germany," International Court of Justice judge Hisashi Owada said at a public hearing in The Hague.

The two European Union members have been locked in a legal battle since December 2008, when Germany filed an application before the court after an avalanche of lawsuits by Italian relatives and widows for Third Reich abuses.

The ICJ added that Italy "must, be enacting appropriate legislation, or by resorting to other methods, ensure that the decisions of its courts" which infringed on German immunity "cease to have effect."

The cases sought compensation for deportations of Italians and other acts by German troops during World War II after the former Axis partner switched sides and joined the Allies in September 1943.

Berlin said that by permitting claims for abuses that occurred between September 1943 and May 1945, Italy "failed to respect the jurisdictional immunity" that modern-day Germany enjoys under international law.

Italy on the other hand, argued that the cases were admissible as abuses committed by German troops amounted to "international crimes" which have precedence over state immunity.

This included the case of Luigi Ferrini, who was deported as a forced labourer to Germany in August 1944.

Ferrini claimed compensation from Germany in 1998, and a 2004 Italian Supreme Court decision in his favour led to a flurry of claims by relatives and widows of Nazi war crimes victims.

There were now 80 cases pending with 500 plaintiffs, German lawyers told the court when the two countries argued their cases before ICJ judges in September.

Also before the ICJ as a non-party state is Greece, because of victims of a 1944 German massacre at Distomo, in which 218 people were killed.

Relatives of the Greek massacre victims refiled a case before Italian courts, after a Greek court failed to enforce a ruling for Germany to pay 28.6 million euros in compensation to the plaintiffs.

An Italian court however enforced the original ruling and slapped a financial charge on two buildings in Italy, owned by the German state.

Berlin has consistently refused to compensate the Distomo claimants, saying the case had been settled between the two countries in 1960.

Established in 1945, the ICJ is the UN's highest court and settles disputes between states.