A court in the federal state of North Rhine-Westphalia blocked the plans in a ruling in September, saying they did not conform with an existing law on recyling and refuse.

However, the state's senior administrative court in Muenster rejected this ruling and the complaints of about 25 retail groups and drinks producers in its decision last week.

The case will still go to the federal administrative court early next year.

The government's plans and previous German courts' support for the directive have boosted shares in Norway's Tomra Systems Inc, which makes recycling machines which accept waste bottles and repay the deposits.

Tomra shares were up 4.3 percent at 61.00 Norwegian crowns at 1050 GMT in a slightly stronger Nordic market.

Retailers and beverage manufacturers have long opposed the measure but the government says it is necessary because the percentage of cans and bottles being recycled - typically after being returned to the retailer - has fallen below a 72 percent minimum target set in 1997.

Opponents say industry faces start-up costs of 1.4 billion euros and running costs of 0.9 billion euros per year and lost sales if they are forced to push up prices.