Former Maoist rebels and security forces have both been accused of carrying out torture, killings, rape and "forced disappearances" during the civil war, which ended with a peace agreement in 2006.
Two commissions for transitional justice set up last week were given the power to grant them amnesty, but Nepal's Supreme Court revoked that power after a mass petition filed by 234 victims.
"It is a landmark judgement. The court has addressed the concerns of the victims and paved way to grant them justice," advocate Dinesh Tripathi, who represented the victims in the case, told AFP.
No amnesty can be given for serious cases of rights abuses on any ground, the court said, adding that the victim must give approval for any act of reconciliation.
Ram Kumar Bhandari, a petitioner whose father was disappeared by the state in 2001, said that the verdict was encouraging but demanded that it must be followed by actions.
"The decision is very positive, but now all the stakeholders must work to make the transitional justice process victim-centric," Bhandari said.
The act was slammed by Amnesty International this week in its annual report, stating that it further "entrenched" impunity in the country.
The Truth and Reconciliation Commission and a Commission for Enforced Disappearances were agreed as part of the peace pact signed between the Maoists and the government in 2007.
Although the Supreme Court has issued arrest warrants in several cases of human rights abuses committed during the war, only one verdict has been given in a case where a journalist was murdered.
A colonel of the Nepal Army, who was arrested in January 2013 in Britain over allegations of torture committed during the war is also facing trial in a British court.
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