An Indonesian court has ruled indigenous people have the right to manage forests where they live, a move which supporters said prevents the government from handing over community-run land to businesses.

Disputes between indigenous groups and companies have become increasingly tense in recent years, as soaring global demand for commodities like palm oil has seen plantations encroach on forests.

In Thursday's ruling, Constitutional Court judges said that a 1999 law should be changed so it no longer defines forest that has been inhabited by indigenous groups for generations as "state forest", according to court documents.

"Indigenous Indonesians have the right to log their forests and cultivate the land for their personal needs, and the needs of their families," judge Muhammad Alim said as he handed down the ruling, state news agency Antara reported.

While environmentalists welcomed the ruling, they warned it could unintentionally lead to an upsurge in disputes between authorities and communities over the classification of indigenous land.

In March, seven villagers were shot and at least 15 police officers were injured in northern Sumatra, where a dispute over a forest claimed by both the community and government has been simmering since 1998.

The National People's Indigenous Organisation filed the challenge to the 1999 law, which they say has let officials sell permits allowing palm oil, paper, mining and timber companies to exploit their land.

The group said Friday's ruling affected 40 million hectares (98 million acres) of forest -- slightly larger than Japan, and 30 percent of Indonesia's forest coverage.

They said this area was legally classified as "customary forest", the term that describes forests that have been inhabited by indigenous people for a long time.

"About 40 million indigenous people are now the rightful owners of our customary forests," said the group's chief Abdon Nababan.

However, a senior forestry minister official said he believed the total amount of "customary forest" was far lower, and stressed it could take time to implement the changes as local governments would all need to issue a decree.

Stepi Hakim, Indonesia director of the Clinton Climate Initiative, said the ruling would give legal grounds for indigenous communities to challenge businesses operating in their forests, but this could lead to a string of new disputes.

"As soon as this policy is delivered, local governments have to be ready to mitigate conflicts," he said.

Indigenous groups are commonly defined as those that retain economic, social and cultural characteristics that are different from those of the wider societies in which they live.