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The court ruling came after a Muslim teacher who was prohibited from working in Berlin state schools because she wore a headscarf.

The woman had been "discriminated against because of her religion" when was refused a position following a job interview, the court decided. Headscarves could only be banned if there was a serious threat to peace at school, the court added.

The ruling came after an initial lower court decision in November 2018 ordered Berlin to pay the woman €5,159 ($6,098) in compensation. At the time, lawyers on behalf of the city appealed the ruling, citing the neutrality law.

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Teachers in the city are banned from wearing headscarves under the Berlin's neutrality act, which prohibits civil servants from wearing religious symbols.

Thursday’s court order was the last stage in the ongoing lawsuit that saw the federal labour court side with the lower court's decision.

Applauding the latest ruling, Berlin's Senator of Justice Dirk Behrendt called on Twitter for the law to be changed.

"The conflict about the neutrality law should not be allowed to be carried on the backs of the women concerned," he said.

"In a multi-religious society, it must be about what one has in their head and not on their head," he added.

Bernhard Franke, head of the Federal Anti-Discrimination office also welcomed the ruling and called for the neutrality law to be revised to avoid future conflict of interest.

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