India’s supreme court has ordered the government to review all restrictions in Indian-controlled Kashmir within a week, saying the indefinite suspension of people’s rights amounted to an abuse of power.

In a blow to the Hindu nationalist government of the prime minister, Narendra Modi, the country’s highest court said the expression of opposition to state policy could not justify the crackdown.

Last August, Modi revoked Jammu and Kashmir’s autonomy and split the state into two territories under the direct control of Delhi. The move was followed by a series of draconian measures including curfews, the detention of political leaders and the cutting off of all communications including phones and the internet.

The government has gradually restored landlines, and SMS services were restored on 31 December, but 7 million Kashmiris still do not have online access in the longest internet shutdown ever imposed in a democracy.

The government has repeatedly justified the continued internet suspension as necessary for preserving human life and preventing terrorism. In its justification, it said no one had died.

The court said any suspension of the internet, which it called intrinsic to free speech, must be accompanied by detailed reasons to allow aggrieved persons to challenge it in court.

The ruling came in response to petitions filed by Anuradha Bhasin, the executive editor of the Kashmir Times, the opposition Congress party leader, Ghulam Nabi Azad, and others.

“The ruling shows that liberty and security have to be balanced. The court has made it clear that it is people’s freedoms that are paramount, not the government’s agenda,” said Sushmita Dev of the Congress party.

The internet shutdown has devastated the economy and caused job losses. Local businesses ranging from hoteliers unable to get bookings to the handicrafts sector unable to sell the region’s famous shawls have been shattered. Indian mobile operators have also lost revenue.

A report on Thursday by the internet research company Top10VPN said that India lost more than $1.3bn (£1bn) in internet shutdowns last year, not just from Jammu and Kashmir but in other areas.

“We welcome the ruling. It’s a good decision after a long time. The entire industry has suffered and the economy is in a shambles,” said Sheik Ashiq, the president of the Kashmir Chamber of Commerce and Industry.

While the Jammu and Kashmir administration is unlikely to ignore such a significant and emphatic ruling, it’s not known whether it will opt to restore the internet in full or choose a partial and gradual restoration after its review.

“In principle the ruling is good, though it has taken a long time. But in terms of immediate relief, there is none. The court has left it to the administration to decide,” said Bhasin.

On Thursday, the government took 15 ambassadors, including the US’s envoy, to Kashmir to show them the situation on the ground. Critics called it “farcical” and a “guided tour”. EU representatives declined to take part because they wanted access to people and groups of their choosing.

The supreme court also directed the Indian government to make public all orders imposing a lockdown in Kashmir in August after article 370 of the constitution, granting Kashmir special status, was revoked, said Vrinda Grover, a human rights lawyer.