Benefits dating back to October are to be paid to hundreds of refugees already living in Sussex and thousands more poised to come to Britain.

More than 250 people from the former British colony of Diego Garcia have settled near Gatwick during the past year, many of them in Crawley.

When they arrived they were denied benefits but that decision was overturned at an appeal hearing in London on Monday.

The ruling could pave the way for another 5,000 exiled islanders, who are British citizens and say they are suffering discrimination and poverty in Mauritius and the Seychelles, to come to the UK.

New arrivals will be able to claim jobseekers' allowance and housing benefit while they look for work.

Community leaders plan to discuss extra immigration with councils before it happens and do not expect a deluge of refugees.

When the first islanders arrived in September 2002 the Department for Work and Pensions refused to pay them benefits, saying it only paid people who have lived here for three to six months unless there were special circumstances.

The islanders said they were entitled to help because the British government gave their island to the United States to be used as a military base and evicted them in 1970.

They are not allowed to move back to, or even visit, Diego Garcia.

An appeal hearing this week ruled they had been treated unfairly and should have been regarded as special cases.

Allen Vincatassin, one of the first refugees to arrive, said: "The community is jubilant. It has taken us a lot of campaigning and attention in the media to reach this stage.

"All those arriving are homeless, they have nothing, but now they will be entitled to jobseekers' allowance. "I am really pleased. It is a very big step, a leap forward."

Solicitor Nadine Clarkson, from Ole Hansen & Partners in south London, said the decision would make it possible for islanders to establish themselves in Britain.

About half are now in full time jobs but the rest are still looking for work. They have been living on £20 per week handouts from West Sussex County Council, which have now stopped.

A judicial review will be held in June to decide if exiles from Diego Garcia should have the same treatment as people from Ireland, who can claim benefits because of their country's links to Britain.

A separate campaign is being run calling for the refugees to be allowed to visit the Indian Ocean island, a move being resisted by the Foreign Office.