An Egyptian court said on Tuesday the government must respect an initial court ruling to scrap the direct sale of state land for Talaat Moustafa Group's (TMG) Madinaty land project and should publicly auction the land.

TMG's $3 billion Madinaty project has been mired in a legal row since a court said the land on which it is built should have been sold at auction, sparking concern among investors that other state land sales may be challenged.

The government's answer was to scrap the original contract and return the land to TMG, Egypt's biggest listed developer, under a new deal on the same terms, based on its right to act in the national interest.   

The firm has already signed the new contract, but that has not stopped the case from rumbling on in the courts, showing what analysts say is a need for legislation to clear ambiguity about how state land is sold.

"The court rules to ... halt the negative decision which did not implement the previous court verdict to nullify the Madinaty contract ... which included withdrawing the land from the firm and reoffering it in a public auction," Judge Hassan Abdel Aziz said. His verdict was met with applause in the court room.   

TMG suffered a 34 percent slide in third-quarter net profit and analysts blame delays to sales as the lawsuit sowed confusion over Madinaty.

The TMG case rattled investors in the property sector and prompted several copycat suits challenging state land sales to companies including Palm Hills and Egyptian Resorts. - Reuters