(ALBANY, N.Y.) -- A topless club in Manhattan is not an ''adult establishment'' within the meaning of New York City's ordinance which seeks to zone sex-oriented businesses out of residential and popular tourist areas of the city, a court ruled.

The Court of Appeals unanimously ruled last month that the VIP Club does not fallunder the zoning law, which defines adult businesses as those with a ''substantial portion'' of their floor space devoted to sex-oriented materials or activities.

The definition is crucial to whether the VIP Club can stay at its current location at West 20th Street. The city argued that ''any'' sexual-related activities at the VIP Club or other topless clubs or X-rated theaters subjects them to the zoning ordinance, the Court of Appeals noted.

The law aims to consign businesses peddling sexually explicit materials to industrially zoned areas of the city.

The VIP Club argued that the same definition should apply to it as has been used to describe what an adult bookstore is in the city -- if 40 percent or more of its floor space is devoted to sex-oriented merchandise. The VIP Club said it only offers topless dancing on a mezzanine visible by less than 36 percent of its floor space and it otherwise defines itself as an ''upscale cabaret with topless entertainment.''

In its unsigned, unanimous ruling last month, the Court of Appeals -- the state's highest court -- said the VIP Club was right. To rule in the city's favor would cause the ''substantial portion'' component of the city's zoning ordinance to be ignored where any adult-oriented entertainment was offered in eating and drinking establishments, the judges said.

Thursday's ruling affirmed two lower court rulings about the ''substantial portion'' question.

The lawyer for the VIP Club's owners, Dezer Properties, Inc., called the decision ''another victory for First Amendment, freedom-of-expression rights.''

''This will put an end to the city's heavy handed efforts to close the VIP,'' Simon Rothkrug said. ''It is really a victory for all topless clubs and adult theaters in the city of New York.''

Steven Fishner, New York City's criminal justice coordinator, said the ruling ''frustrates the obvious intent of the law by making it possible for some businesses to evade the law's clear purpose.''

''We will continue vigorous enforcement and we will consider legislative changes to insure that our residences, schools and places of worship remain far from the shadows cast by strip clubs and other adult businesses,'' Fishner said.

Last December, the Court of Appeals sided with an adult bookstore specializing in gay materials, Les Hommes, in another challenge to the meaning of the 1995 sex shop zoning ordinance. In that decision, the court upheld the 40 percent rule and rejected city arguments that some adult bookstores were offering non-adult materials in a ''sham'' compliance with the zoning ordinance.