A court ruled on Thursday that the site of a demolished mosque in Ayodhya would be split between Hindus and Muslims, dousing immediate fears of a violent backlash in one of the country's most religiously divisive cases.

The Uttar Pradesh court also ruled Hindus will be allowed to keep a makeshift temple that was built over the demolished central mosque dome, sparking celebrations by priests who dipped in a nearby river chanting "The temple is now ours".

The 1992 demolition of the 16th century mosque in northern India by Hindu mobs triggered some of India's worst riots that killed about 2,000 people. More than 200,000 police fanned out in India on Thursday to guard against any communal violence.

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If the ruling soothes tensions, it would be a boost for the ruling Congress party, a left-of-centre group with secular roots, that does not want to upset either voter bloc. Major political parties had called for calm.

"I know that often it is only a few mischief makers who create divisions in our society," Prime Minister Manmohan Singh said in a statement.

"I would appeal to my countrymen to be vigilant and not let such people succeed in disrupting peace and harmony."

The verdict was handed down days before Sunday's opening of the Commonwealth Games in New Delhi, with the government wanting to project an image of stability and modernity to the world.

"Nobody has won. Nobody has lost," Yashwant Sinha, a leader of the Hindu nationalist Bharatiya Janata Party, told local television. "Let's not look at this as a victory for anyone."

Muslims did appear the biggest losers. But Muslim organisations were measured in their response, careful not to inflame public tensions in a country where they account for only 13 percent of the 1.2 billion plus population.

There were no immediate reports of violence after the ruling.

"It was a very sensible judgment and the court has tried to balance the parties," said Anil Verma, a political analyst. "Apportioning one-third to the Muslims means they have not completely lost."

Commentators said the verdict was unlikely to spark widespread riots that hit the financial capital Mumbai and other cities in 1992. There is little electoral headway to be made in egging on religious riots in post-economic reform India.

The 2-1 majority verdict gave two-thirds of the key parts of the disputed land to Hindus -- one third each to two different Hindu groups -- and one third to Muslims.

Hindu inhabitants of Ayodhya town -- under a security lockdown for a week -- lit candles and lamps outside their homes.

MUSLIM DISAPPOINTMENT

Many Muslim organisations expressed some disappointment but called for reconciliation, resting hopes in an appeal by Muslim lawyers to the Supreme Court in New Delhi.

"The judgment can begin a process of reconciliation," Kamal Farooqi, a member of the All India Muslim Personal Law Board, said.

From the capital New Delhi to Mumbai and towns of the northern Hindu "cow belt" along the holy Ganges river, many Indians waited with apprehension on the verdict, some staying at home and stocking up with food.

"Everybody is very happy with the verdict. People were scared but now everything seems to be normal. People are now opening their shops," said Ghulam Mohammad Sheik, a social worker in Mumbai.

The verdict's outcome will be a barometer of whether a rapidly globalising India with a growing middle class and an interest in investor stability has shed some of the religious extremism that often marred its post-independence years.

"I just think there is a moment in which we have to agree with ourselves as modern people to live in the modern world," British-Indian novelist Salman Rushdie told NDTV broadcaster before the verdict was announced.