The European Court of Justice has ruled the British government violated EU laws, in place since 1985, by not requiring the developer to conduct an environmental-impact study.
It means future studies could be demanded throughout the building process - and not just at the outline planning permission stage.
And European lawyers have threatened the government with hefty fines if there are any failures to comply.
The row was originally triggered by the Crystal Palace Campaign (CPC) ( pictured campaigning), after the London Borough of Bromley granted permission in 1999 for the massive scheme without an environmental assessment of its impact taking place.
The project was abandoned by developer London & Regional Properties in 2001, but the planning battle continued all the way to the European Court of Justice in Luxembourg.
The government insisted an environmental-impact assessment could only be demanded at the outline planning stage and not later in the development.
But EU judges ruled that assessments can be done at any time.
CPC chairman Ray Sacks told the AJ: 'UK planning law will need to be amended to provide for environmental assessment of reserved matters applications.
'I think the outcome speaks volumes for the Blair government's attitude towards the environment and its purported Euro credentials during its nine years in office. It would be interesting to know what this debacle has cost the taxpayer in needless legal costs over these past five years.'
The new Department for Communities and Local Government, which last week took over the planning brief from the ODPM, said it was digesting the implications of the ruling.
A spokesman said: 'We have a very good record of compliance with the directive because we take the importance of environmental assessments seriously. We are looking at the detail of the judgement in order to assess any wider implications.'