The EU's top court ruled on Wednesday that Uber is an ordinary transportation company instead of an app and should be regulated as such, in a decision that is being closely watched around the world.
Hailed by the plaintiffs - a Spanish taxi association - as "a social victory", the case is yet another thorn in the side for US-based Uber, which has drawn the fury of taxi drivers and officials for flouting local regulations.
It also comes the same week as one of its drivers admitted to the attempted rape and murder of a British embassy worker coming home from a night out in Beirut, Lebanon.
"The service provided by Uber connecting individuals with non-professional drivers is covered by services in the field of transport," said the Luxembourg-based European Court of Justice.
"Member states can, therefore, regulate the conditions for providing that service."
Uber, the biggest name in the growing gig economy, claims it is a mere service provider, connecting consumers with drivers in more than 600 cities.
Uber has run into huge opposition from taxi companies and other competitors who say this allows it to dodge costly regulations such as training and licensing requirements for drivers and vehicles.
The case was brought by a taxi drivers' association in the Spanish city of Barcelona, where belief runs high that Uber is a taxi company that should be subject to rules governing such vehicles.
"This will truly represent a social victory, and the whole of society will benefit from this," Ivan Esma, spokesman for the Elite Taxi association, told reporters, adding that "the road will be long" for the ruling to be enforced.
Ruling 'won't change things'
Uber said the ruling would make little difference in practice.
"This ruling will not change things in most EU countries where we already operate under transportation law," an Uber spokesperson said in an emailed statement.
"However, millions of Europeans are still prevented from using apps like ours."
In a dense legal judgement, the ECJ said that Uber was a service that connects "by means of a smartphone application and for remuneration non-professional drivers using their own vehicle with persons who wish to make urban journeys."
That means it is "inherently linked to a transport service and, accordingly, must be classified as a 'service in the field of transport' within the meaning of EU law."
The EU court's senior adviser had said in a legal opinion in May that Uber was indeed a transport company.
Uber has had a rough ride in Spain, where a judge ruled in 2014 that its UberPOP service risked breaking the law, leading to the Barcelona submission to the ECJ.
Early last year it decided to only operate a limited a version of its UberX service in Spain which uses licensed, professional drivers instead of the amateurs who had previously worked via the UberPop application.
Uber has already had problems with the law in several European countries, particularly France where the company was forced to overhaul its business model.
In November a labour court in London, where the company is threatened with losing its license, said it had to pay the drivers a minimum wage and give them paid leave.
Uber does not employ drivers or own vehicles, but instead relies on private contractors with their own cars, allowing them to run their own businesses.
Licensed taxi drivers meanwhile often have to undergo hundreds of hours of training, and they accuse Uber of endangering their jobs by using cheaper drivers who rely only on a GPS to get around.