A hotly-contested German road toll that targets foreigners is in violation of EU law, the bloc's highest court ruled on Tuesday.

The Luxembourg-based European Court of Justice ruled in favour of Austria, which opposed a "vignette" or payment sticker costing up to 130 euros a year for private vehicles on German motorways.

Under the scheme Germans would essentially be refunded the levy with a reduction in their annual motor vehicle tax.

The measures have been the subject of a furious row for years with plans to launch the toll in October 2020 for all cars.

"The charge is discriminatory since the economic burden of the charge falls, de facto, solely on the owners and drivers of vehicles registered in other member states," the ECJ said in a statement.

As the neighbouring countries argued, the toll is "likely to hinder access to the German market for products from other member states," the court added. 

Germany is obliged to comply with this judgement as soon as possible or face financial sanctions, it said.

Berlin's plans, a pet project of Chancellor Angela Merkel's political allies in Bavaria, had also angered other neighbours including Belgium and the Netherlands.

With the decision, the toll and refund scheme as it was proposed must be scrapped, German Transport Minister Andreas Scheuer admitted, without saying what would replace it.

The judgement must be "respected and accepted", Scheuer told reporters in Berlin.

Charges to use motorways, based either on the amount of time spent or distance travelled, are already in place in many European countries.

Anyone driving on Austrian motorways, including Austrians, has to buy a vignette toll sticker valid for a certain time period.