Both sides said they would appeal.
The rationale behind the ruling was unclear, but attorneys said the three-judge panel's decision gave something to Hindus and Muslims in a long-running legal battle, The New York Times reported.
The case involved a holy site in Ayodhya, which Hindus claim as the birthplace of the Hindu deity, Rama, but also was the site of the Babri Masjid mosque, built in the 16th century by India's first Mughal ruler. In 1992, Hindu extremists destroyed the mosque, which led to rioting that killed about 2,000 people.
Attorneys said the court's ruling would designate a third of the land for construction of a temple to Rama, another third for another Hindu party to the case, and a third for Muslims to build a mosque, the Times reported.
"The judgment is in favor of Hindus," said H.S. Jain, a lawyer for one of the Hindu groups in the case. "The belief of Hindus that this is the birthplace (of Rama) is upheld."
Zafaryab Jilani, a lawyer representing one of the Muslim parties, said the ruling wasn't a defeat for Muslims.
"There is no reason of any loss of hope," Jilani said, adding, "We do not agree with the formula of giving one third of the land to Muslims."
Lawyers representing Muslim and Hindu groups said they would appeal to India's Supreme Court.
The Home Ministry deployed nearly 200,000 security personnel ahead of the ruling. The ministry also imposed a temporary nationwide block on bulk text messages to try to prevent potential calls to violence.
The Times reported that as of early Thursday evening, as details of the case becoming public, there were no reports of protests or violence.
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