Hundreds of people were killed and property destroyed during the raid on the community of Odi in November 1999, the Nigerian Tribune reported Wednesday.
Then-President Olusegun Obasanjo ordered the invasion after a group of people in the community, in the coastal state of Bayelsa, kidnapped six police officers.
Obasanjo had ordered the Bayelsa governor to arrest the abductors within 14 days.
In his ruling against the government, Justice Lambo Akanbi of the Federal High Court in Port Harcourt described the invasion by the Nigerian army as genocidal and a violation of the residents' human rights.
Plaintiffs had sought to have the court declare the invasion and consequent violence as "a gross violation of the people's fundamental human rights to life, dignity, personal liberty."
The judge dismissed as false claims by the counsel to Nigerian President Goodluck Jonathan about the mission of the troops.
Akanbi said Jonathan recently asserted on television that those killed were not militants but innocent members of the community.
Akanbi set a deadline of 21 days for the government to pay the judgment.