Traffic police in the western city of Nantes fined 31-year-old Sandrine Mouleres euro22 ($29.22) in April, saying she did not have a clear field of vision, but the court quashed the fine Monday.
Jean-Michel Pollono, Mouleres' attorney, said the court in Nantes had ruled that "we are in a free country, and as a result, everything that isn't forbidden is allowed."
The court decided that the veil "moves with the head and does not hinder visibility," and therefore does not go against the driving code cited by police, the lawyer added.
French authorities have long wrestled with Muslim practices that they contend do not conform with the country's values, in particular its secular tradition. France is home to the largest population of Muslims in western Europe, with an estimated 5 million.
In September, the French parliament approved a law banning face-covering Islamic veils in public places including streets. It will go into effect in the spring.
Many Muslims see the legislation as another blow to Islam - France's No. 2 religion - and fear it could raise levels of Islamophobia in a country where mosques are sporadic targets of hate-fueled attacks.
The law sets fines of euro150 ($199) - or citizenship classes, or both - for any women, including tourists, caught covering their face. It also carries much heavier penalties for anyone, such as husbands or brothers, convicted of forcing the veil on a woman.
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