The 5-4 ruling gave the court's blessing to cities across the USA that have sought to use their powers of eminent domain not just to clear the way for public projects such as roads and parks, but also for private developments involving hotels, offices and retail centers. The justices rejected a challenge by homeowners in New London, Conn., who fought the city's plans to take their property for such a project along the Thames River. (Related: Court's opinion)

The ruling drew a sharp dissent from Justice Sandra Day O'Connor, who warned that it will allow governments to seize any property simply to allow developers to upgrade it. "Nothing is to prevent the state from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall," said O'Connor, who was joined by Chief Justice William Rehnquist and Justices Antonin Scalia and Clarence Thomas in a dissent that emphasized property owners' rights.

The case was a key test of such rights, and of how far governments can go in trying to revitalize areas. Previously, the court had upheld governments' authority to condemn blighted property for redevelopment, a tactic used in rejuvenating New York City's Times Square and Baltimore's Inner Harbor. Thursday's decision was the first time the court ruled on whether governments could seize non-blighted land for economic development. (Related story: Seizures must be in public interest)

The Constitution's Fifth Amendment allows government to take property as long as "just compensation" is paid and the property is converted to a "public use." The dispute in Thursday's case was over whether seizing land for private economic development is a legitimate public use.

Susette Kelo and the other owners of 15 homes in New London challenged the plan to take their property for a project that will include a hotel, office complexes and a marina. The project is intended to complement a Pfizer research plant nearby. Kelo's lawyers urged the court to find that cities cannot seize land that is not blighted for private development.

The court's majority said, however, that past high court rulings give local officials wide latitude in using eminent domain. "Promoting economic development is a ... long-accepted function of government," Justice John Paul Stevens wrote. He noted that the project was expected to create jobs and increase tax revenue.

The majority included the court's four more liberal justices. The key fifth vote was Justice Anthony Kennedy, a conservative at the court's ideological center. He said judges reviewing challenges to property seizures should presume that local officials acted reasonably — but that they should make sure that such seizures don't merely reflect favoritism toward developers.

Daniel Krisch, a lawyer for New London, said hearings were held on the project over several years. Kelo countered: "I am very disappointed that the court sided with powerful government and business interests."