State Supreme Court Judge Donna Mills ruled that NYU needs to get permission from the state Legislature for parts of the school's 1.9 million-square-foot expansion because it would impact strips of land being used as public parks.
"Respondents alienated public park land without approval by the New York State Legislature in violation of the Public Trust Doctrine," she wrote.
A coalition of community groups and residents had filed suit against the university in 2012, criticizing the plan. But supporters said the expansion would help NYU's ability to attract top students.
Randy Mastro, lawyer for the suing groups, said the decision "is a huge victory for the Greenwich Village community, preserving this historic neighborhood and protecting its precious parkland."
He expressed doubt that NYU could get legislative approval, pointing out that one of the plaintiffs in the suit is the local state Assembly member, Deborah Glick.
In a statement, NYU said the decision reaffirmed the city's approval of the project.
"This is a complex ruling, but the judgment is a very positive one for NYU: five of the six petitioners' claims were dismissed, the judge reaffirmed the City's approval of the project, and most importantly the judge's ruling allows us to move forward with our first planned project - the facility to provide new academic space on the site of our current gym," spokesman John Beckman said.
The city said the decision was under review.
The area sports row houses and carriage houses dating from the 1820s to the 1850s. The expansion plan calls for four new buildings in the area around Washington Square Park and the demolition of two low-rise buildings.