A Thai court accepted a lawsuit against state-owned Electricity Generating Authority of Thailand (EGAT) and four other state bodies on Tuesday for agreeing to buy electricity from a $3.5 billion hydropower dam being built in neighbouring Laos.
The Xayaburi dam, which will be the first on the main stream of the Mekong River in Southeast Asia, is at the heart of landlocked Laos's ambitions to supply power to the region, with Thailand set to buy around 95 percent of the electricity generated.
Activists say the project threatens the livelihood of tens of millions who depend on the river's resources.
Villagers from Thai provinces near the Mekong petitioned the Administrative Court in 2012 to suspend a power purchasing agreement signed by EGAT and Laos's Xayaburi Power Company Limited but the court ruled it had no jurisdiction to hear the case.
That decision was reversed on Tuesday when the Supreme Administrative Court sided with villagers, who are demanding full environmental and health impact assessments.
Shares in Thai builder CH Karnchang, the main contractor for the controversial dam, were down 3.1 percent at 0810 GMT after the decision.
"The villagers are hoping that with this case the court will suspend the power purchase agreement and in the meantime carry out a transboundary impact assessment and further consultations," Ame Trandem, Southeast Asia programme director for the International Rivers group, told Reuters.
"Ultimately, if the court finds the purchase agreement was approved illegally, it could cancel the agreement altogether."
In 2011, member states that make up the Mekong River Commission overseeing the river's development, agreed to conduct further environmental impact assessments before construction proceeded. Laos went ahead with a groundbreaking ceremony in November 2012, signalling the formal start of construction.
Laos, Thailand, Vietnam and Cambodia share the lower stretches of the 4,000 km (2,500 mile) Mekong. Vietnam and Cambodia have urged Laos to halt the dam's construction pending further study.