The International Court of Justice (ICJ) in The Hague ruled on Tuesday it has jurisdiction to hear a claim by Croatia that Serbia committed genocide against its population in the 1991-95 war, reported dpa.
The ICJ said the decision was final, binding and without appeal and had been made by 10 votes to seven.
Croatia filed the case against the rump Yugoslavia, consisting of Serbia and Montenegro, in 1999, while it was still run by the strongman Slobodan Milosevic.
Zagreb claims Belgrade fomented and supported a Serb insurgency following Croatia's declaration of independence from Yugoslavia in 1991.
Ethnic Serbs, then making up some 12 per cent of the population, had proclaimed a state of their own, which was recognized only by Belgrade, on a third of Croatia's territory.
Zagreb says 20,000 people died and 55,000 were wounded and 10 per cent of all homes in the country were damaged during the three years of war, which ended in a massive defeat of the Serbs.
Croatia now demands compensation for the damages it claims Serbia is responsible for. Serbia argues that the ICJ does not have jurisdiction to rule in the case.
Tuesday's ruling would deal only with the issue of the ICJ competence.
Last year, the court ambiguously cleared Belgrade of being responsible for a genocide of Muslims in Bosnia in a case filed by Sarajevo, but also chided Serbia for not doing enough to stop bloodshed.
The ICJ, operative since 1946, is the primary judicial organ of the United Nations.
Apart from settling legal disputes submitted to by member states, the ICJ also gives advisory opinions on legal questions.
The UN recently accepted a petition by Belgrade to request an opinion from ICJ on the legality of Kosovo's secession from Serbia.