EU members states cannot ban the use of commonly used terms if they do not have legal definitions, the Court of Justice of the European Union (CJUE) said in its ruling.
France issued decrees in 2022 and February 2024 restricting the use of words including "ham", "steak", "sausage" and "bacon" to animal-based products.
Authorities said the rules were needed to avoid creating confusion for consumers.
French livestock farmers had long lobbied for the measure, and their lobbying organisation denounced Friday's ruling.
Interbev, which represents France's cattle and livestock industries, said it "deplores this decision that validates the usurpation of natural products to commercialise ultra-transformed foods".
Makers of vegetable-based proteins had protested the government's decrees, and France's top administrative court had suspended them while it awaited the CJUE's decision.
A preliminary ruling had said that banning use of the words "would seriously and immediately harm the interests of businesses" involved in the plant-based protein industry.
"This is a very welcome victory," said La Vie, a French maker of plant-based meats.
The company's lawyer, Guillaume Hannotin, who also represents the wider industry, said terms such as "plant-based steak" or "vegetable steak" had been in use for 40 years.
Among the groups who took the case to the court were the Vegetarian Association of France (AVF) and the European Vegetarian Union.
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