Italy's highest court has ordered Germany to pay compensation to families of victims of a Nazi massacre in Tuscany, threatening to spark a diplomatic row between the countries.

The Court of Cassation ruled that Germany should pay a total of 1 million (£770,000) in damages to nine relatives of two of the victims of the killings, in which more than 200 Italians were slaughtered.

The verdict, the first of its kind in Italy, paves the way for thousands more claims by families of people killed, injured or deported to German labour camps during the Second World War.

Germany said that it would not pay, arguing that under international law it was immune from such a prosecution. But the relatives could obtain a court order for the seizure of German state property in Italy in lieu of payment.

On June 29, 1944, units of the Herman Goering Division of paratroops occupied the small town of Civitella after partisans had killed three German soldiers. They killed all 203 civilians they found there, including women and children.

In 2006, at the first trial brought in regard to the massacre, Max Josef Milde, a German former sergeant and the last surviving defendant, was convicted in absentia and given a life sentence. The verdict was upheld on appeal and confirmed again this week by the Court of Cassation. Milde, 88, lives in Germany and is unlikely to be extradited.

The compensation concerns only Ranieri Pietrelli and Metello Ricciarini, because only their relatives sought it.

Augusto Dossena, who represented Germany at the trial, said that the German state had already paid reparations for Nazi crimes under previous agreements with Italy. “The entire issue of compensation for war crimes was settled in 1961 by the Bonn Treaty, which assigned 40 billion lire to Italy as compensation for all German war crimes. Germany will not pay a single euro,” he said. The Court of Cassation rejected his argument, ruling that the Bonn Treaty covered only crimes prompted by racism and therefore referred specifically to the deaths and deportation of Jews.

Roberto Alboni, the lawyer for the families and the grandson of one of the victims, said: “I find it grotesque and offensive that Germany does not respect the verdict of a sovereign state. We now have a credit, established by a court ruling, and will do everything possible to have it paid. Including seizing German property in Italy.”

Under international law, state property, including embassies, consulates and cultural centres, are immune from seizure. “We will study the possibilities carefully,” Mr Alboni said. “I am confident that in the end we will find something to seize. But this lawsuit is not so much over money as it is to establish a principle.”

Giorgio Alpeggiani, one of Milan's leading civil and corporate lawyers, said: “This verdict establishes, at long last, an extremely important principle regarding compensation for individual suffering inflicted during the war, and also regarding the 1961 blanket agreement, in which the sum awarded to Italy was ridiculous.”

The German Embassy in Rome would make no comment.

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