Banning clubs from joining a European Super League was unlawful and Uefa and Fifa are "abusing a dominant position", the European Court of Justice has said.
It comes after a case was brought by the ESL and its backers claiming Uefa and Fifa were breaking competition law by threatening to sanction those who joined the breakaway league.
The European Union's highest court found against the governing bodies.
It added that did not mean a breakaway league would "necessarily be approved".
On a hugely significant day for European football:
Uefa said it was "confident in the robustness" of rules
ESL backers A22 released revamped proposals
Real Madrid said clubs were "masters of their own destiny"
La Liga referred to the ESL as a "selfish and elitist model"
An initial report released last December by the ECJ said the rules of football's European and world governing bodies were "compatible with EU competition law".
The verdict will be seen as a blow to the authority of Uefa and Fifa and how they govern the game.
Uefa said it was "confident in the robustness" of rules it has brought in since the ESL was first proposed, and that it would "comply with all relevant European laws and regulations".
It added it trusted football's existing set-up would be "safeguarded against the threat of breakaways by European and national laws".
Barcelona - one of the initial 12 clubs to agree to the ESL - said the verdict "paved the way for a new competition".
And ESL backers A22 then released revamped proposals, which this time include a women's European tournament.
The plan would feature a league system with 64 clubs across three leagues in the men's competition, and 32 clubs across two leagues in the women's competition. Both would involve promotion and relegation.
The ESL had initially been intended to be a midweek competition consisting of two groups of 10 teams, followed by a play-off phase.
Anger grew when details emerged that the 12 founding clubs would never have to forfeit their places in the league, locking out all but five other clubs across the whole of Europe in the process, once another three founding clubs had been confirmed.
Fans protested that the ESL would be detrimental to leagues across Europe and that greed was the driving factor for clubs joining, with no consideration for supporters.
The report said that when new competitions are "potentially entering the market" Fifa and Uefa must ensure their powers are "transparent, objective, non-discriminatory and proportionate".
The report added: "However, the powers of Fifa and Uefa are not subject to any such criteria. Fifa and Uefa are, therefore, abusing a dominant position.
"Moreover, given their arbitrary nature, their rules on approval, control and sanctions must be held to be unjustified restrictions on the freedom to provide services.
"That does not mean that a competition such as the Super League project must necessarily be approved. The Court does not rule on that specific project in its judgment."
Bernd Reichart, chief executive of A22, wrote on X - formerly Twitter - that the ESL "have won the right to exist".
He added: "Uefa's monopoly is over. Football is free. Clubs are now free from the threat of sanctions and free to determine their own future.
"For fans: we offer free broadcasting of all Superleague matches. For clubs: Income and solidarity expenses will be guaranteed."
The ESL saga began in April 2021 when news broke that 12 teams - including English teams Arsenal, Chelsea, Liverpool, Manchester City, Manchester United and Tottenham - had signed up to the breakaway competition.
There was widespread fury and condemnation from fans, other European leagues and even government, leading to the collapse of the plans within 72 hours.
The six Premier League clubs plus Atletico Madrid, Inter Milan and AC Milan were fined by Uefa, but action against Real Madrid, Barcelona and Juventus was halted during the legal process, although Juventus signalled their intention to quit the project in July.
The ESL has not been scrapped completely, however, with Real Madrid and Barcelona remaining interested in pursuing the venture.
Real welcomed the ruling, saying clubs will now be the "masters of their own destiny".
"It is a great day for the history of football and for the history of sports," a statement added.
Meanwhile, Spain's La Liga said European football had "spoken".
The statement said: "Today, more than ever, we reiterate that the "Super League" is a selfish and elitist model.
"Anything that is not fully open, with direct access only through the domestic leagues, season by season, is a closed format."
No-one expected this judgement to be so powerful
Analysis from Simon Stone, OceanNewsUK
This judgement is a massive blow to Uefa and Fifa and their authority to govern the game.
The wording of the ruling from the 15-strong Grand Chamber is damning.
It says their structures mean there is no way of checking whether their operations are 'transparent, objective, non-discriminatory and proportionate'.
It says the rules around commercial rights are anti-competitive.
This does not mean a European Super League is coming. For the English clubs in particular a lot of bad blood was created by the ill-fated launch of the project in 2021. Unpicking that, certainly in the short-term, will not be easy.
However, those who have pushed the project now know they can go away and speak to who they want, when they want, about a vision for European football that suits them, and Uefa and Fifa will have to work with them or risk losing their power.
No-one, including Uefa and Fifa, expected this judgement to be so powerful.
The ramifications will be felt for a long time to come.
