A US federal judge has allowed a lawsuit to proceed against Germany over claims of the Nazi-era theft from Jewish dealers of a celebrated collection of gilded medieval art treasures.

It was the first time a US court had agreed to hear Nazi art theft claims against Germany, said Nicholas O'Donnell, an attorney for the heirs of three Jewish art dealers who say the Nazis terrorized their families in 1935 into selling the collection at far below market price.

The claim against Germany seeks the return of the Welfenschatz collection, which includes centuries-old gem-studded busts of saints and golden crucifixes.

Germany had asked for the case to be thrown out, arguing that a US court did not have jurisdiction to deal with the matter.

Judge Colleen Kollar-Kotelly ruled on Friday, however, in federal court in Washington that since the Nazis' organised plunder of Jewish property was part and parcel of their later genocide of the Jews - a crime under international law - the court had jurisdiction to hear the case.