Judges at the Strasbourg court said soldiers overseas were bound by the European Convention on Human Rights.
The decision came after relatives of six Iraqis - who it is alleged were ill-treated by British troops - took the UK to court.
The UK argues the convention does not apply to troops serving outside Europe.
Four years ago, the House of Lords - now the UK Supreme Court - ruled there was no UK human rights jurisdiction surrounding the deaths or wrongful detention of six civilians.
'Historic day'But it accepted UK responsibility under the convention in the case of hotel receptionist Baha Mousa, because he was in a British military building in Basra at the time of the alleged brutality which led to his death.
Continue reading the main storyThis is a monumental judgement. Today is a historic day for human rights in Europe and beyond”End Quote Phil Shiner Public Interest Lawyers The latest judgement effectively extends the remit of the convention.
The judges said that in the "exceptional circumstances" when UK forces assume responsibility for security in parts of Iraq, they remained under rules obliging signatory member states to safeguard the right to life and liberty.
The relatives of those who died - apart from Baha Mousa - were awarded ?15,200 (17,000 euro) each in damages, and a total of ?44,700 (50,000 euro) in costs and expenses.
The court ordered the UK government to pay the seventh man - 54-year-old Hilal Abdul-Razzaq Ali Al-Jedda - damages of ?22,400 (25,000 euro) and ?35,700 (40,000 euro) in costs and expenses.
Reacting to the verdict, lawyers representing those who brought the case said it was a "historic day" for human rights in Europe.
Birmingham-based firm Public Interest Lawyers said in a statement: "The immediate ramifications for the Ministry of Defence are highly significant.
"The court's ruling means that a whole host of Iraqi victims, previously prevented from accessing justice, are now finally to seek redress for their abuse.
"For the first time, they will be able to go to the High Court in London and force Liam Fox, the Secretary of State for Defence, to order a public inquiry into the actions of British soldiers in their cases."
'Asphyxiation'Head lawyer Phil Shiner added: "This is a monumental judgement. Today is a historic day for human rights in Europe and beyond."
The cases before the court all involved incidents between may 203 and June 2004 when the UK was an occupying force in Iraq.
Three victims were shot dead or shot and fatally wounded by British soldiers during patrols or raids, and another died during an exchange of fire between a UK patrol and unidentified gunmen.
A fifth was allegedly beaten and forced into a river where he drowned, and the sixth was Baha Mousa, who was seized by members of the 1st Battalion The Queen's Lancashire Regiment.
He was taken to a British military base where he was beaten and died of asphyxiation with 93 injuries on his body.
The seventh victim, Mr Al-Jedda, is a British and Iraqi national now living in Istanbul.
He was arrested in October 2004 on suspicion of terrorist involvement in Iraq, and taken to a detention centre in Basra run by British forces. He was released more than three years later without charge.
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