US District Court Judge Jack Weinstein rejected a motion to dismiss the case, allowing a trial to go forward against Altria unit Philip Morris, RJ Reynolds Tobacco Co. and others.
The plaintiffs are seeking damages from what they claim was a conspiracy dating back decades to make it appear that light or "low tar" cigarettes were safer.
The ruling opens the door to a potentially massive judgment against cigarette makers.
Up to now cigarette manufacturers have managed to avoid major damage awards or win appeals in most the suits alleging they should pay for improperly hiding the dangers of tobacco.
Merit in cases
Judge Weinstein wrote in his decision that he believed there was “enough merit to both plaintiffs' and defendants' contentions to permit the litigation to go forward".
"If, as contended by plaintiffs, a huge fraud was perpetrated on tens of millions of people causing them billions of dollars in loss ... recovery dependent on proof should be allowed."
The judge said there was "considerable merit" to the allegation that most smokers would not have purchased light cigarettes "if they knew they provided no health advantage over regular cigarettes."
Appeal expected
Philip Morris USA general counsel William Ohlemeyer said the company would appeal the ruling.
Mr Ohlemeyer said “the decision runs counter to the overwhelming weight of federal and state case law regarding class actions in smokers' litigation and must be reversed".
Richard Jahnke, analyst at Briefing.com said the ruling was "disappointing" for major tobacco companies and opens the door to damages of 120 billion to 200 billion dollars.
The lawsuit, "was seen as one of the last large legal hurdles facing the industry," he said.
"This presents a considerable overhang for the industry, and could have specific implications for Altria Group's restructuring plans."
Major cases
Cigarette makers recently won a major victory in a US government lawsuit when a federal judge in Washington ruled that even though the companies may have misled smokers, the firms cannot be held liable for punitive damages.
In the other major case pending against the industry, Florida's Supreme Court in July tossed out a landmark 145-billion-dollar punitive damage award against cigarette makers to hundreds of thousands of smokers, calling it "excessive as a matter of law."