Israeli companies are entitled to exploit the West Bank's natural resources for economic gain, according to a supreme court ruling that says international law must be adapted to the "reality on the ground" of long-term occupation.

The supreme court rejected a petition brought by an Israeli human rights organisation against the quarrying of stone by Israeli companies in the West Bank. Yesh Din claimed that the quarrying was illegal under international law because it exploited the natural resources of the occupied territory for the benefit of the occupying power.

But the court ruled last week that in a prolonged occupation the economic development of the occupied territory could not be frozen indefinitely. It added that the quarrying firms were not destroying the "capital" of the West Bank's natural resources, and were providing employment to Palestinians.

Existing Israeli-owned quarries should be allowed to continue operating, but no new ones should open, the court ruled, reflecting the Israeli government's position.

Yesh Din said the ruling could be applied to other economic aspects of the occupation, such as water resources and the appropriation of archeological artefacts.

Its petition against the state of Israel and 10 Israeli companies operating quarries in the West Bank demanded a halt to all Israeli quarrying and mining activity, and that no new licences be issued. It said Israeli quarrying in the West Bank was illegal and "executed through brutal economic exploitation of occupied territory for the needs of the state of Israel, the occupying power".

According to a Palestinian Authority report on the economic costs of the Israeli occupation published in September, the potential value of production from mining and quarrying in the West Bank under Israeli control is an estimated $900m (£580m) a year.

Yesh Din quoted an Israeli interior ministry document from 2008, which said that most mines and quarries in Area C of the West Bank (around 60% of the territory that is under Israeli military control) are owned by Israeli companies. Three-quarters of the total yield is sold in Israel.

Michael Sfard, Yesh Din's legal adviser, said: "Quarrying natural resources in an occupied territory for the benefit of the occupying state is pillage, and the court's reasoning that a long-term occupation should be treated differently cannot legalise an economic activity that harms the occupied residents."

Hanna Barag of Yesh Din said the ruling was "dangerous". The judgment was based on the assumption that the length of the occupation meant that Israel could adapt international law. "It allows Israel to literally steal the land," she said. Israel has occupied the West Bank for more than 44 years.

At a quarry close to the Israeli settlement of Kochav HaShacher, deep in the West Bank, director Ami Soshani dismissed Yesh Din's arguments, saying Palestinians benefited from the company's operations.

The land on which the quarry is sited was taken over by Israel. Owned by the settlement and managed by a separate company, the quarry is overlooked by the Palestinian village of Kfar Malek.

It extracts around half a million tonnes of dolomite each year, and 20 of its 25 employees are Palestinians. Soshani says that most of its output stays in the West Bank, sold either to settlements or Palestinian concrete factories.

"For the Palestinians, this is an important centre. Palestinian construction companies know they are not cheated and get a good product. The Palestinian workers here did not support the court action because they knew it could affect their livelihoods," he said.

The land itself, he said, had been promised to the Jews. "This is our inheritance, we got this land from God." There was no reason why Jews and Palestinians couldn't "stay together and live together" on the land, he added.

Shoshani said his major concern was for the environment. "This kind of quarrying is damaging. It is an ugly wound on the landscape." A geological survey found there was potential for a further 20 years of quarrying at the site.

In response to the ruling, Yesh Din said "manipulation of the rule prohibiting the harming of property in occupied territory creates a legal basis for irreparable economic exploitation of occupied territory … On its face, the new rule allows the occupier (in a long-term occupation) to make endless use of the variety of objects found in the occupied territory: to pump its water sources, to transfer its archeological artefacts to elsewhere outside the territory, to use areas within it for garbage disposal, to sell public real estate, and more."