However, the tribunal and the PCA have no means to enforce the verdict, with compliance left to the parties concerned.
Manila and its allies - including the United States - say China will nevertheless be bound by the ruling.
But Beijing has said from the start that the tribunal is invalid and has boycotted its proceedings.
The Philippines is hoping the favourable ruling will help to build international pressure on China to make concessions and reverse or stall its expansionist efforts in the sea.
It also hopes the win will give it much-needed leverage in any negotiations with China, including on signing a code of conduct for the sea.
"The Tribunal concluded that there was no legal basis for China to claim historic rights within the sea areas falling within the 'nine-dash line'," the Hague-based Permanent Court of Arbitration said in a statement.
China has already reacted to the ruling. Xinhua, the country's official news agency, claimed the ruling was an "ill-founded" ruling, adding: '[I]ts decision is naturally null and void."
State broadcaster CCTV said China's troops would "unswervingly safeguard state sovereignty, security, maritime rights and interests".
In its ruling, the tribunal stated "China had violated the Philippines' sovereign rights in its exclusive economic zone by (a) interfering with Philippine fishing and petroleum exploration, (b) constructing artificial islands and (c) failing to prevent Chinese fishermen from fishing in the zone.
The tribunal also held that fishermen from the Philippines (like those from China) had traditional fishing rights at Scarborough Shoal and that China had interfered with these rights in restricting access.
The tribunal further held that Chinese law enforcement vessels had unlawfully created a serious risk of collision when they physically obstructed Philippine vessels."
