A German state prosecutor says it will decide soon an extradition charge after the court deemed such action was permissible.
The court in Schleswig-Holstein gave its green light to the extradition of the 55-year-old for misuse of public funds but not rebellion, which carries up to 25 years in jail.
Puigdemont went into self-imposed exile in Belgium after Madrid fired him and his government for "illegally" declaring independence for Catalonia. He was arrested on his way back from a trip to Finland.
"The accusation of misuse of public funds is acceptable, extradition for rebellion is not acceptable", the German court stated in a press release.
He and a number of his former colleagues are facing charges for their role in the pro-independence drive, which reached its peak past year with an illegal referendum on secession from Spain and the aforementioned declaration.
Puigdemont hailed the decision as a victory, tweeting "we have defeated the central lie of the (Spanish) state".
A second charge of rebellion did not warrant an extradition from Germany to Spain, the court ruled. "German justice denies that the referendum of October 1 was rebellion".
"Every minute that our companions spend in prison is a minute of shame and injustice".
After an initial ruling that Puigdemont could not be extradited for rebellion because the comparable German treason charge requires the defendant to have committed violence, prosecutors in May said they had received new video evidence showing violence against Spanish police which they claimed made extradition on the charge possible. "We will fight until the end, and we will win!"
Catalonia's current separatist President Quim Torra, who is close to Puigdemont, tweeted that "once more the machinations and lies of a judicial case that never should have started have come to light".
The Spanish government rejects Catalan independence. Before he closed this part of the proceedings, he ordered Puigdemont, Oriol Junqueras, and the four other politicians who are being held in pre-trial custody (Raül Romeva, Jordi Turull, Josep Rull and Jordi Sànchez) to be suspended from their roles as deputies in the Catalan parliament.