Yesterday's decision by the Competition Appeal Tribunal (CAT) overruled a proposal drawn up last April by the Competition Commission that said any new supermarket would be subject to a retailer's existing market share in the area.
But the decision has infuriated local shopkeepers who are already angry that Tesco takes on average £1 in every three spent on groceries on the high street.
Critics claim Tesco is using its financial clout to drive away small, independent stores and reducing choice for the consumer.
Supporters of the Competition Commission's plans include Asda, Waitrose, Marks & Spencer and the Association of Convenience Stores.
But Tesco bosses have argued the opposite, saying the original ruling was taking decision-making powers away from the shopper and placing it with the local council planning departments, who would have the power to refuse new supermarkets had the proposal been carried.
The Competition Commission's proposal would have prevented stores from opening within a 10-minute drive of three or fewer operators, and where the new store would have taken the operator's local market share to above 60%.
Tesco currently has more than 2,000 stores in the UK and says it plans to add two million sq ft to its empire by April 2010.
The Competition Commission, responding to CAT's verdict, said: "The appeal was upheld on the narrow grounds that certain considerations about how the test would work and its costs and benefits should have been explored further in the report."
It said it would now "study the judgement closely before deciding our next steps".