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The court on Friday rejected a complaint by Philip Morris, maker of Marlboro cigarettes, which argued the ban violates a free trade agreement linking non-EU member Norway to the European Union's market rules.
Philip Morris said it might appeal.
The court said the display ban did not constitute a barrier to trade, and could be justified for public health reasons.
"As the court sees it, the display ban is necessary and that there are no alternative, less intrusive measures that can have equivalent results," it said.
The ruling is being followed by countries including Britain, New Zealand, Canada and India, which are considering similar measures to help fight smoking.
Tord Dale, political advisor to the Norwegian Health Minister, said: "We are glad that the court has decided that looking after people's health is more important than the profits of the tobacco industry."
Since 2010, cigarette packets and other tobacco products have been covered up in Norwegian shops and are not visible to buyers, as part of a drive to discourage tobacco use.
In April, Britain implemented a similar ban for large vendors, while smaller vendors have until 2015 before having to conform to the legislation.
The European Commission is due to propose a revision of EU rules on tobacco products by the end of this year, which is widely expected to include more prescriptive requirements for health warnings on packets.
A Commission spokesman said the proposals would include new rules on packaging, but declined to comment on media reports the plans will introduce a single pack size for all cigarettes and require warnings on the health effects of smoking to cover 75 percent of the pack.
Norway's decision to rebuff Philip Morris' complaint comes less than two months before the fifth round of negotiations on the World Health Organization's global tobacco treaty in Seoul, South Korea, in November.
"We are not happy with the ruling," said Philip Morris spokesman Nordan Helland. "We will now look carefully at the court's decision and assess if we are going to appeal."
Norway has said that if the ban was upheld it would follow Australia and require plain packaging of tobacco.
"I know that this ruling will be read carefully in other European countries," said Knut-Inge Klepp, director at The Norwegian Health Directorate.
"Currently we are waiting for a new strategy from the government on tobacco legislation. We are in dialogue with other European countries on the issue," he added.
Australia's landmark decision means that from December 1, cigarettes and tobacco products must be sold in plain olive green packets with graphic health warnings, such as pictures of mouth cancer and other smoking-related illnesses.
Source : http://www.reuters.com