A group of young people who claim an "atmospheric soup of toxic materials" released when an old steelworks was redeveloped caused their birth defects won a landmark ruling today when it was found that the local council had been negligent in its handling of the site.

The high court decision clears the way for 16 successful claimants, who are aged between 11 and 22 and have missing or underdeveloped fingers or deformities to their feet, to set out to prove their individual disabilities were caused by Corby borough council's failings when reclaiming the former British Steel plant. Compensation could run into millions of pounds if they succeed.

In an action thought to be the first of its kind since the Thalidomide scandal of the 1960s, they allege their disabilities were caused in the early stages of foetal development, when their mothers either lived or regularly visited Corby during the time the council undertook massive demolition, excavation and redevelopment works on the site.

Mr Justice Akenhead, who described the Northamptonshire council's approach as one of "dig and dump", said there was an extended period between 1983 and August 1997 when it was "extensively negligent" in its control and management of the sites.

That negligence, and breach of the council's statutory duty from 1992, led to contaminated mud and dust being spread around Corby and in homes in the town, the judge ruled, and those contaminants could realistically have caused the types of birth defects suffered by the claimants – of which there was a "statistically significant" cluster between 1989 and 1999.

The council had denied it was negligent or that there was a link between the removal of waste to a quarry north of the site, and deformities.

But the judge accepted the evidence of waste management expert Roger Braithwaite, who said that more than 15 years of poorly regulated "muck shifting" polluted the environment of the town.

Braithwaite was rightly appalled at the way the council had conducted itself, Akenhead said. "[The council] bit off more than it could chew and did not really appreciate the enormity, ramifications and difficulty of what it was setting out to achieve in terms of removing and depositing very substantial quantities of contaminated material," he ruled in his 919-paragraph judgment.

The 680-acre Corby site had four blast furnaces and two coke oven complexes, and closed in 1980 with the loss of 10,000 jobs.

The council said it was surprised and disappointed by the ruling and was considering whether to appeal. If it does not, the cases to decide whether each child's deformity was caused by the council's negligence will go ahead individually, a process which could take another two or three years.

Lawyers said it was unlikely that the compensation claim of even the least disabled child would be less than £100,000, with others being considerably more.

The sums to be evaluated are not only for the physical and emotional effects of the disabilities, but also future losses, including the effect on their employment.

The judge's finding that there were no breaches of duty after August 1997 means that two other children, aged nine and 10, on whose behalf cases were brought cannot proceed.

The firm representing the claimants, Collins Solicitors, says it knows of dozens more young people in the area who have birth defects, although they would not necessarily all wish to take legal action. It called on Corby council to settle its 16 clients' claims out of court.

Lawyer Des Collins said: "Prior to the trial, the council maintained that a thorough investigation had led it to the conclusion that there was no link between the reclamation work and the children's birth defects.

"It also maintained that had any convincing evidence been shown that the children had good claims, then the council would have wanted to compensate them appropriately without going to trial. Today that link has been established and the evidence provided. The children now call upon the council to fulfil their pretrial promises without delay.

"The council got it wrong," he added. "They should simply put their hands up now and admit it. We will have to fight on, but we are quite determined to do that."

The council said it was not prepared to apologise unless a causal link was proved between the reclamation works and the defects suffered by the claimants.

"We are not yet at the point of saying sorry because nobody yet is responsible," chief executive Chris Mallender said. "Our position has always been that there was no link between the reclamation work that was carried out in Corby in past decades and these children's birth defects. That is still our position."

He said the council, which had already run up legal costs of £1.9m and now faces a claim from the families' solicitors for an additional £4.7m, offered the opportunity of independent arbitration but it was declined by the parents.

"We continue to sympathise with their circumstances. We regret that they have had to pursue this case over so many years and we, like they, would hope we can now draw this to a conclusion and everybody can move on."