Sydney's Deputy Chief Magistrate Paul Cloran, who has been hearing the extradition case, ruled that Dragan Vasiljkovic aka Captain Dragan was eligible for surrender to Croatia.
Vasiljkovic has 15 days to appeal the ruling in the Federal Court of Australia, Reuters reported.
Vasiljkovic, 51, was arrested in Australia in January 2006 on the basis of an extradition request filed by the Croatian authorities.
He told the Australian press last year that he had trained Serb soldiers, interrogated enemy soldiers, killed in battle, and led attacks on command posts, but he denied involvement in war crimes.
A 1994 UN report mentions Vasiljkovic as the second most important person in the so-called Republic of Serb Krajina after the infamous military leader Zeljko Raznatovic Arkan.
Prior to his arrest Vasiljkovic had worked in Perth as a golf coach under the false name Daniel Snedden. He claimed to have been unlawfully arrested because Australia and Croatia do not have an official agreement on extradition. He emigrated to Australia at the age of 15, but returned to his country of origin at the beginning of the war, Dpa reported.
Vasiljkovic is charged, in his capacity as commander of a special Serb paramilitary unit, with torturing and killing captive Croatian soldiers and police in a prison in Knin in June and July 1991 as well as in Bruska near Benkovac in February 1993.
He is also charged with devising, in agreement with a commander of the former Yugoslav People's Army (JNA), a plan of attacks in the Glina area resulting in the destruction of civilian facilities, the expulsion of the local population, the plundering of their property, and the killing and wounding of civilians, including a foreign journalist.
The request for Vasiljkovic's extradition, who holds both Australian and Serbian citizenship, was filed by former Croatian Justice Minister Vesna Skare Ozbolt.
On Thursday afternoon, the Croatian Justice Ministry stated that it had been notified about the Australian court's decision regarding Vasiljkovic.
According to sources from the Croatian ministry, Vasiljkovic has possibilities for another three appeals at various court levels.