Researchers studied a total of 78 cats from the cat cafe and several Japanese households.
The cafe cats also responded to the names of their playmates, which scientists think is a result of hearing the names frequently said together by strangers who don't know which animal is which.
Cats who lived with their owners at home were also found to be skilled at distinguishing their own names from similar words of the same length and accents, moving their ears, and tails or purring to acknowledge the familiar sound.
Writing in the journal Scientific Reports, lead author Dr Atsuko Saito, said: "These results indicate that cats are able to discriminate their own names from other words.
"There was no diference in discrimination of their own names from general nouns between cats from the cat café and household cats, but café cats did not discriminate their own names from other cohabiting cats' names.
"We conclude that cats can discriminate the content of human utterances based on phonemic differences."
Now that it has been shown cats understand words, the researchers suggest it could be put to use, perhaps for teaching them to avoid dangerous objects or places.
Around 18 per cent of households in Britain owns a cat, amounting to around 11.1 million animals.
But researchers have only recently begun to investigate the ability of cats to communicate with humans. Studies in the last few years have found that cats are able to understand human pointing gestures, similar to dogs yet unlike canines will not gaze towards humans when they cannot access food.
However, a recent study showed cats will gaze at humans when exposed to a potentially frightening object, and will change their behaviour depending on the facial expression of their owner.
Cat behaviour has also been found to be linked to human mood, and they have been shown to discriminate their owners voice from a stranger, proving they do have the ability to recognize human gestural, facial, and vocal cues.
Dogs are generally thought to be better at communicating with humans because they have a longer history of cohabitation.
Humans began living with cats around 9,500 years ago, while dogs have been companion animals to humans for around 14,000 years. Communicative traits in dogs have also been selectively bred over time by humans, but changes to house cats from wild felines have happened through natural selection.
Numerous research studies have shown that dogs are skilled at reading human gestures, using visual cues to help find hidden food and to fetch objects. The pitch of a human voice affects dog behaviour and most dog owners believe their pet understand about 30 utterances while extensively trained dogs have been shown to understand hundreds.
"I am not sure that cats are as smart as dogs because dogs have the ability to discriminate more than 200 -1000 words," added Dr Saito.
"The way to interact with humans is very different between dogs and cats. Cats have the ability to discriminate their own names from other words, they will not respond to them positively when they do not want.
"I think it is difficult for cats to be trained so extensively. But cats do have the ability to understand human utterance."
This article originally appeared on the Daily Telegraph.