Equality campaigners in Sheffield have succeeded in forcing a local council to admit that it failed to consider the impact on the community when it licensed a strip club, paving the way for activists across the country to challenge similar venues.

In a judicial review in Leeds high court, campaigners argued the council had only considered the impact on women and gender equality at the branch of Spearmint Rhino, and had failed in its legal obligation to consider the impact on the wider community – the so-called public sector equality duty.

The council conceded partway through the case that it had not consulted properly, and must now go back to the drawing board.

The new consultation exercise could lead to Spearmint Rhino being forced out of Sheffield. However, the council said the strip club operator’s current licence still stands and would not be removed as a result of the court case.

A Sheffield resident referred to as Irene mounted the legal challenge, supported by campaigners against strip clubs. Her solicitor, Louise Whitfield of Deighton Pierce Glynn, welcomed the news. “This victory is recognition of the very serious concerns about how strip clubs normalise the commodification of women’s bodies,” she said.

“This case could have wider significance for other councils around the country who are considering licensing strip clubs.”

Around 10 local authorities have approved policies not to allow any more strip clubs in their area, but the campaigners hope this victory will set a national precedent.

The judge in the case, Mrs Justice Philippa Whipple, criticised the council, saying it was the second time its policy on strip clubs had been successfully challenged in court.

“This is the second judicial review the council has conceded on the same issue, and conceded on public sector equality duties grounds on both occasions,” she said. “That is disappointing. I hope council will take it seriously.”

Spearmint Rhino, which has been open in Sheffield for 16 years and is the only strip club in the city, was an interested party in the judicial review. Its licence was renewed last year despite almost 100 objections.

In a submission to the council when the licence was under consideration, the club’s manager said it was run to a very high standard and the welfare and safety of dancers, staff and customers were his main concern.

The council had previously argued that if it refused to grant any licences to strip clubs they would simply operate unregulated, which would lead to more exploitation of women.

When the council consulted on the issue, various women came forward to say they had experienced harassment by men visiting the club. One woman, who had a studio opposite the venue, said one of the reasons she gave it up was because of her negative experience of working so close to Spearmint Rhino.

She said she was “harassed by men hanging around outside the club” and it made the area feel “unsafe, testosterone-filled and unpleasant to move around in”.

A spokeswoman for Not Buying It Sheffield, a campaign group that supported the legal challenge, said: “We welcome the council’s concession. However, it is regretful that this was not done earlier, which would have saved a lot of work and money. Irene is very relieved and hopes that other local authorities will also take note.”

A Sheffield city council spokesman said: “We understand that we could have been clearer about how the consultation had affected our final policy. We welcome the feedback from the court and are committed to re-running the consultation, including a new equality impact assessment. We really hope all those with an interest in this area will take the opportunity to have their say, as we work to get the right policy for Sheffield.”