The head of the International Court of Justice in The Hague said international law "contains no applicable prohibition" of Kosovo's declaration of independence.
"Accordingly, (the court) concludes that the declaration of independence on 17 February, 2008, did not violate general international law," ICJ President Hisashi Owada told the court.
Ten of the judges supported the non-binding decision and four opposed it.
Serbian physically lost control of the province when its troops were driven out after a NATO bombing campaign aimed at halting the violent repression of the province's ethnic Albanians.
NATO took over the administration of the province at the end of fighting, which included NATO bombing of the Serbian capital Belgrade.
When the province unilaterally declared its independence in 2008, the Serbian government in Belgrade claimed that it violated Serbia's territorial integrity and was against international law.
Around 90 percent of the province's 2 million people are of Albanian ethnic origin, called Kosovars. Many of the Serbian-dominated towns and villages are along its northern border with Serbia.
Many Kosovars fled into refugee camps set up just across its southern border with Macedonia, which was part of the Serbia-Croatia controlled Yugoslav republic until that state's breakup began in the 1990s.
The commander of the NATO-led peacekeeping Kosovo Protection Force in Kosovo said its 10,000 troops were on alert for violence after the ruling.
"On the field we don't have indications about nervousness, about any upcoming threat," said German Gen. Markus Bentler of KFOR.
Kosovo's declaration of independence has been recognized by around 60 countries in the United Nations. These include the United States, Canada and Japan and the former Yugoslav states of Montenegro and Macedonia.
"We were pleased that the court agreed with the long-standing view of the United States that Kosovo's declaration of independence is in accordance with international law," White House spokesman Mike Hammer said.
The ruling puts the Serbian government in a delicate diplomatic position because it is hoping to become a member of the political and economic grouping European Union sooner rather than later. More than 20 of the 27 EU member states have recognized Kosovo's independence.
"The advisory opinion opens a new phase," Catherine Ashton, EU High Representative for Foreign Affairs and Security Policy, said. "The focus should now be on the future. The future of Serbia lies in the European Union. The future of Kosovo also lies in the European Union."
But Serbia President Boris Tadic said the fight to retain Kosovo will go on. "Serbia of course will never recognize the unilaterally proclaimed independence of Kosovo because it believes that unilateral, ethnically motivated secession is not in accordance with the principles of the United Nations," he said.
Among the countries opposed to Kosovo's independence are Russia, China, India, Spain, Greece, Romania, Slovakia and Cyprus. Also opposed is the former Yugoslav republic of Bosnia which went through a violent war based on Christian and Muslim religious divisions in the early 1990s and which remains under U.N administration.
An estimated 90 percent of Kosovars are Muslim and the Serbians, who haven't left for Serbia, are mostly Orthodox Christian.
In May, hundreds of Kosovars rallied in the small town of Ferizaj, south of the capital Pristina, demanding that local school administrators take back a 15-year-old Muslim girl whom they had expelled for wearing a headscarf.
Kosovo's constitution guarantees religious freedom and there is no law against wearing the headscarf in school.
Kosovo, despite its independence, remains in economic trouble, all the more so because of suspected links to Eastern European and Middle Eastern drugs and people smuggling groups.
The Kosovo Liberation Army, which had the tacit backing of Western powers during the conflict with Belgrade, is among the groups believed to have been financed at least partially by drug money.