The federal government should stop clawing back disability benefits paid to thousands of former Canadian Forces members, the Federal Court of Canada has ruled.

About 4,500 disabled veterans launched the class-action lawsuit against the government, arguing it was unfair that long-term disability payments for pain and suffering were being deducted from their Service Income Security Insurance Plan (SISIP) pension.

SISIP is a disability benefits insurance plan that gives soldiers up to 75 per cent of their former pay if they become disabled.

The veterans argued before the court in November that their benefits were being unjustly clawed back because the pension payments were unfairly deemed as income. Some vets said they were losing upwards of $3,500 a month to the clawbacks.

In today's decision, Judge Robert Barnes says the SISIP payments should not be considered "income benefits," and therefore should not be used to offset the long-term disability payments.

By deducting disability benefits from the SISIP, it "wholly deprives disabled veterans of an important financial award intended to compensate for disabling injuries suffered in the service of Canadians," Barnes wrote.

"The SISIP offset effectively defeats the Parliamentary intent . . . to provide modest financial solace to disabled CF members for their non-financial losses.''

Peter Driscoll, a lawyer for the veterans, says the decision is a big victory. He says the government should now pay take steps to pay back injured vets the millions of dollars that were clawed back.

"This ruling is a signal for the government of Canada to stop illegally taking money away from Canada's disabled veterans and stop any legal action against disabled veterans who cannot afford to hand over more money," Driscoll said in a news release from his firm, McInnes Cooper.

"This is the time to start treating Canada's veterans with the honour and dignity they deserve."

It's not clear yet if the federal government will appeal the decision.

The lead plaintiff in the case, Dennis Manuge, a former corporal who once served in Bosnia and who injured his back on duty at CFB Petawawa, said he was pleased with the ruling.

"I now expect the government of Canada to do the right thing: accept the Federal Court of Canada's decision and move quickly to implement it," he said in a statement.