The justices, in a 7-2 ruling, found that Missouri unlawfully prevented Trinity Lutheran Church access to a state grant programme.
The US Supreme Court on Monday sided with a church that objected to being denied public money in Missouri, potentially lessening America's separation of church and state by allowing governments more leeway to fund religious entities directly.
The justices, in a 7-2 ruling, found that Missouri unlawfully prevented Trinity Lutheran Church access to a state grant programme that helps non-profit groups buy rubber playground surfaces made from recycled tyres.
Conservative Chief Justice John Roberts, writing for the majority, said that the exclusion of the church "solely because it is a church, is odious to our Constitution."
In denying the church's bid for public funding, Missouri cited its constitution that bars "any church, sect or denomination of religion" or clergy member from receiving state money, language that goes further than the US Constitution's separation of church and state.
Trinity Lutheran, which runs a preschool and daycare centre, wanted a safer surface for its playground. Its legal fight was led by the Alliance Defending Freedom, a conservative Christian legal advocacy group.
The dispute pitted two provisions of the US Constitution's First Amendment against each other: the guarantee of the free exercise of religion and the Establishment Clause, which requires the separation of church and state.
Trinity Lutheran argued that Missouri's policy violated its right to exercise religion as well as the US Constitution's promise of equal protection under the law.
Missouri argued there was nothing unconstitutional about its grant program, noting that Trinity Lutheran remained free to practise its faith however it wants despite being refused state funds.
Three quarters of the US states have provisions similar to Missouri's barring funding for religious entities.
Just before the April oral argument, Missouri's Republican governor, Eric Greitens, reversed the state policy that had banned religious entities from applying for the grant money, saying it was wrong for "government bureaucrats" to deny grants to "people of faith who wanted to do things like make community playgrounds for kids."
Nonetheless, Missouri and the church both urged the justices to decide the case because of the important issues involved and because the governor's action was not irreversible.
Trinity Lutheran sued Missouri in federal court in 2012.
The St. Louis-based 8th US Circuit Court of Appeals in 2015 upheld a trial court's dismissal of the suit. The church then appealed to the Supreme Court.