A DISTRICT court in the Bosnian Serb capital has overturned a ruling ordering the town to pay $50 million (£30.2m) to its Muslim community for 16 mosques demolished during the 1992-5 war.
A local magistrate in Banja Luka decided in February to grant the Islamic community compensation eight years after it sought reparation for damages.
The ruling was hailed as "historic" by Bosnia's Muslims, who suffered the biggest losses of t
he former Yugoslav republic's three ethnic groups in the war in which 100,000 people died.
But Banja Luka's district court has overturned the ruling in favour of the Republika Srpska, a Serb-dominated region, and the town of Banja Luka, said the region's general attorney.
"We had expected a decision to overrule the communal court ruling," Slobodan Radulj said. "It has become effective."
Islamic community lawyer Esad Hrvacic made it clear that the community would appeal against the ruling.
"After the first-instance ruling, we thought the judiciary in Republika Srpska had improved and become just and unbiased," Mr Hrvacic said. "But it seems that its independence has been jeopardised at higher levels."
The Banja Luka mosques were blown up and torched during overnight curfews in the war.
The Ferhadija Mosque, one of the finest outside the Arab world, was on Unesco's list of World Heritage sites and is being rebuilt, with some funding from the government in Banja Luka.
The Islamic community says 618 mosques were destroyed in Bosnia, 90 of them in the Banja Luka area. Only 5,000 Muslims live in Banja Luka now; before the war there were 30,000.
