"There was no legal basis for China to claim historic rights to resources within the sea areas falling within the 'nine-dash line'," the court said, referring to a demarcation line on a 1947 map of the sea, which is rich in energy, mineral and fishing resources, Reuters reported.
In the 497-page ruling, judges also found that Chinese law enforcement patrols had risked colliding with Philippine fishing vessels in parts of the sea and caused irreparable damage to coral reefs with construction work.
China, which boycotted the case brought by the Philippines, has said it will not be bound by any ruling.
Xinhua said shortly before the ruling was announced that a Chinese civilian aircraft successfully carried out calibration tests on two new airports in the disputed Spratly Islands.
China’s Foreign Ministry Spokesman Lu Kang said his country will ignore the ruling. "We won't accept any of their so-called materials, no matter what they are."
China claims most of the South China Sea, through which more than $5tn in global trade passes every year. Brunei, Malaysia, the Philippines, Taiwan and Vietnam also have overlapping claims. In their dispute, they are propped up by the US which often conducts military exercises in the area.