The Cypriot supreme court ruled as unconstitutional Friday four bills on bank foreclosures whose passage by parliament prompted international lenders to halt payments on the country's 10-billion-euro ($12.7-billion) bailout.
The decision should open the way for Nicosia to receive the next tranche of 436 million euros, which was blocked last month.
EU finance ministers objected to the bills, adopted to soften the impact of a new law governing foreclosures on loans required as part of the adjustment programme linked to the bailout.
The objective of the new law is to streamline bank foreclosures of bad debts as demanded by the troika of lenders, the European Commission, European Central Bank and International Monetary Fund.
The law ensures foreclosures cannot be indefinitely delayed, reducing the process from years to months, establishing procedures for valuing properties and auctioning them.
Among some of the objectives of the bills that were thrown out were efforts to dilute the law's effect on low-income groups and to prevent widespread repossessions of property.
Last week, Fitch ratings agency said the banking environment remains challenging, given poor asset quality.
Non-performing loans reached in August represent more than 50 percent of total lending, or 157 percent of the country's gross domestic product.
It said the challenge for the banks is to limit any additional credit deterioration and to recover NPLs without affecting their recently restored capital positions.
Cyprus agreed the bailout package after fears of a bank run in March 2013 forced the government to close all the island's lenders for nearly two weeks and impose draconian controls when they reopened.