The verdict puts Italy's constitutional court on a collision course with the Roman Catholic Church which sees euthanasia as the morally unacceptable killing of a person and a violation of the law of God.
The landmark ruling relates to the case of Italian disc jockey Fabiano Antoniani, or DJ Fabo, who chose to die at a Swiss euthanasia clinic in 2017. Fabo was left blind and tetraplegic by a serious car crash in 2014.
His death became the subject of fierce debate in a country where euthanasia is opposed by the Roman Catholic Church.
On Thursday, the Church "distanced" itself from the decision by the court, which it viewed with "discontent", the BBC reported.
The ruling came less than a week after Pope Francis told an audience of hundreds of health professionals at the Vatican to "reject the temptation" to use medicine to "satisfy a sick person's possible wish to die".
Italy's constitutional court said that euthanasia should be permitted by law in the country in certain circumstances, including those in which a patient's irreversible condition was "causing physical and psychological suffering that he or she considers intolerable".
The court was revisiting the question of assisted dying and the "legal framework concerning end of life (situations)", following Antoniani's high-profile case.
Requests had been made by a Milan court to clarify the law in relation to possible charges against pro-euthanasia campaigner Marco Cappato, who accompanied Antoniani on his journey to Switzerland.
Cappato said the decision meant that "from today we are all freer, even those who disagree".
"The council has decided; those who are in Fabo's condition have the right to be helped," he wrote in a tweet.
Cappato was facing up to 12 years in prison for "instigating or assisting suicide", but now he is likely to be acquitted.
Following the court ruling, Fabo's former girlfriend Valeria Imbrogno said his "unspeakable" suffering had not been in vain.
Under the previous law, euthanasia was illegal but a patient had the right to refuse care the potential contradiction led to several cases that divided Ital.
Italy's Parliament is now expected to debate the court's decision.
( With inputs from IANS )