California's Supreme Court has ruled that a Roman Catholic charity must provide employees with contraceptives under its health insurance plan.
The charity says its faith is not being respected
The ruling comes despite the Church's ban on artificial birth control.
The organisation, Catholic Charities, had argued it should be made exempt from the requirement, as Churches are.
But the court ruled it could not be defined as a religious employer because it offered secular services like counselling to people of all faiths.
Correspondents say the ruling will also affect thousands of other Roman Catholic charitable institutions across California and could also apply in 19 other states which have similar laws.
The Supreme Court's 6-1 decision on Monday marks the first such ruling by a state's highest court.
Experts said the ruling could affect thousands of workers at Catholic hospitals and other church-backed institutions in California.
The American Civil Liberties Union hailed the ruling
as "a great victory for California women and
However, it was slammed by the California Catholic Conference, which represents the church in the state.
"It shows no respect to our religious organisations,"
said spokeswoman Carol Hogan.
The single judge who opposed the ruling, Justice Janice Rogers Brown, argued that the state legislature's definition of a "religious employer" was too narrow.
"Here we are dealing with an intentional, purposeful
intrusion into a religious organisation's expression of its
religious tenets and sense of mission," she said.
Justice Brown accused the state of "making
a judgment about what is or is not a religion".