The case is said to affect about 24,000 veterans
Pensions paid to thousands of Gurkhas who retired before July 1997 are unfair, the High Court has heard.
The veterans get only a third of the monthly amount of UK-based soldiers, campaigners told an appeal case.
The British Gurkha Welfare Society is seeking a judicial review against a ruling backing the Ministry of Defence.
Government lawyers argue it was lawful to apply pension improvements only to those in the Gurkhas when the regiment moved to the UK 12 years ago.
In March 2007, the MoD made it possible for the soldiers to place their pensions into one of the mainstream armed forces schemes.
But the change did not apply to those who left the service before the Gurkhas base transferred from Hong Kong when the colony was handed back to China.
Lawyers for the MoD are expected to contend the need to promote equality and good relations was taken into account at the time.
Addressing the court, Declan O'Dempsey, for the society, referred to the legal challenge led by actress Joanna Lumley that resulted in Gurkhas with a minimum four years' service winning the right to settle in the UK.
"At the lowest there is an emerging realisation that Gurkhas should be treated as having a special and equal claim, among other things, to live in the UK," he said.
But he said many of them still believed they were being "unequally treated" by the MoD, despite having "taken the same risks as other members of the British Army".
He said the 1997 move "discriminates against them partly on the grounds of nationality and partly on the basis of their age" and the MoD was failing in its duty to take positive steps to promote "equality of opportunity" between different racial groups.
The two soldiers named as lead claimants in the legal challenge, Surbarna Adhikari, from Reading, and Tikendra Dewan, from Farnborough, are claiming damages against the MoD under the Human Rights Act for alleged unequal treatment.
Before the case British Gurkha Welfare Society general secretary Chhatra Rai said the case affected about 24,000 veterans.
"This is above all a moral issue as the majority of Gurkha veterans in this group are now becoming increasingly old and fragile," he said.
"Most of these Gurkhas are therefore not able to work in their old age to supplement their pension."
Some 94 MPs have supported a House of Commons motion from Labour's George Howarth calling for improved pension rights.
Mr Howarth said: "The fact that this small but significant group of veterans are still discriminated against shows that there is still more to do to ensure that the Gurkhas are treated properly and fairly."
Meanwhile, the MoD has pointed out that Gurkha pensions are paid over a longer period and can amount to the same final level as their UK counterparts.
A Ministry of Defence spokesman said: "Gurkha pensions can be paid from the age of 33, 20 years before British pensions begin. That means a Gurkha rifleman will already have received approximately £40,000 by the time he is 60."