Anti-smoking laws have been dramatically watered down in Berlin in an attempt to protect smaller bars and pubs from being driven out of business, opening the prospect of the law being challenged throughout Germany.

In a ruling which smoking campaigners hope will set a precedent, the German Constitutional Court has ordered the government to re-draft a law which expelled smokers from bars and restaurants, or herded them into separate rooms.

After hearing complaints by small bar owners that the ban was wrecking their trade, the judges ruled that any single-room bar or pub smaller than 75 square metres should be allowed to waive the anti-smoking legislation on condition that under-18s are not admitted and no food is prepared.

So far, the ruling applies only to Berlin and the south-western state of Baden Wuerttemberg. However, it is expected to become the model for Germany as a whole, and many smokers hope it will start a European roll-back.

The ruling came after complaints by one-room bars that they are being put out of business by the ban. Turnover in pubs and discos has dropped by 14 per cent since it came into effect at the beginning of this year; and many smaller bars have gone bankrupt.

The court has also lifted an all-out ban on smoking in discos. Although a no-smoking rule continues on the dancefloor, it will be possible to light up in the bar areas.

Today, the owners of small bars and discos in the city welcomed the ruling. Gregor Scholl, owner of Rum Trader - one of Berlin's legendary night-time watering holes - said the decision was "very sensible" and "sober".

Uli Neu, who runs the Pheasant disco in Tuebingen, and who along with Mr Scholl was one of the co-petitioners, said: "I can see light at the end of the tunnel again. My financial existence has been saved."

The petitioners argued that they had the constitutional right to choose their profession, and claimed that the smoking ban discriminated against them. If they were discriminated against - in Mr Scholl's case because his bar is too small to have a separate smokers' area - they claimed that their right was being violated. The court accepted this argument, demanding that the anti-smoking laws will have to be re-drafted by the end of 2009.

However, the judges - six approving and two dissenting - stressed that the protection of non-smokers remained a high priority and one that was broadly compatible with the constitution.

"The shielding of the population from health damage - and the legislature can describe passive smoking as such - is an important common good," said the president of the court, Hans-Juergen Pieper.

Nearly one in three German adults smoke, and the country has been one of the most reluctant in Europe to accept blanket bans. The laws vary from state to state within Germany, but they usually provide for an up to a 5,000 Euros fine for offending smokers and 10,000 Euros for a bar-owner who allows smoking.

A champion of the smokers' cause has been the former Chancellor Helmut Schmidt, 89, who insists on lighting up even when he is being interviewed on television. Two fire inspectors have to be on hand in the studio whenever he is asked for his geopolitical views. "I understand that politicians have to be role models to some degree but not in every aspect of their lives," he said.

Anti-smoking activists dismissed the idea that the German court decision would make other EU countries re-consider their policies.

"I'm assuming that the EU will soon take up this subject and create a unified Europe-wide set of rules to protect non-smokers," said Benjamin Hoff, junior minister in charge of public health.

"That is the trend, and not the weakening of existing laws."

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