The French Polynesian government has been given 15 days to issue an operating licence to a new domestic airline.
For a year, the government refused for approve an application by a New Caledonia-based businessman Bill Ravel to set up a new airline, called Islands.
The administrative court in Papeete has now ruled that the licence be issued, saying the government's inaction was to protect a monopoly held by Air Tahiti.
Radio1 reports that should the government fail to comply within 15 days, it will be liable to pay $US10,000 a day.
Mr Ravel, who founded Air Calin and Air Vanuatu, wants to use Embraer aircraft to fly to the territory's five archipelagos, undercutting Air Tahiti's fares by 15 to 20 percent.
He also said the plan was also to fly to the Cook Islands twice a week and to Samoa three times a week.
Last year, the transport minister Luc Faatau said he feared the new airline would only fly to the most lucrative destinations, such as Bora Bora.
He said additional taxes may then have to be levied to sustain unprofitable flights operated by Air Tahiti to many of the 40 smaller islands.
This year, the court also forced the government to open up the mobile phone market and the internet provider market.