OTTAWA - The federal government is still weighing its options after losing a five-year legal battle over Canadian Forces disability benefits.

On Tuesday, a federal court judge ruled the feds were wrong to make deductions from veterans' long-term disability benefits by the monthly amount they receive under their disability pensions.

The claw back "wholly deprives disabled veterans of an important financial award intended to compensate for disabling injuries suffered in the service of Canadians," Justice Robert Barnes wrote in his judgment.

Barnes argued offsetting the payments had a "particularly harsh effect on the most seriously disabled CF members who have been released from active service."

"That is an outcome that could not reasonably have been intended and I reject it unreservedly," he said.

Speaking in the House of Commons on Tuesday, Defence Minister Peter MacKay said the departments of defence and justice would be reviewing the ruling.

"Until such time, it would be inappropriate to comment further," he said.

The lawsuit was spearheaded in March 2007 by an injured soldier who began losing disability payments under the claw back soon after his injury forced him out of the military in 2003.

When he was still able to work, he had been collecting both the disability pension and his salary.

Over 4,500 Canadian Forces members were involved in the class-action lawsuit.

If the federal government doesn't appeal, it could cost an estimated $300 million to pay back the reductions to the veterans.