The department said that because of the nature of the SCVs, Kiwi students did not qualify for concessions.
Justice Garde said that if the case had involved an Australian rather than a New Zealand citizen, he would have been entitled to a student concession for use on public transport.
"I am satisfied that the existence of New Zealand citizenship is the substantial reason for the treatment," he said.
"There is direct discrimination based on nationality, and therefore race as defined in the [State Equal Opportunity] Act."
But the judge said students living in Australia on SCVs could not be regarded as permanent residents, and that most special category visa holders were New Zealanders on short-term visits.
"Effectively, employees of Metro, Public Transport Victoria or V/Line would have to determine whether an applicant for a concessional card was a permanent resident of Australia," he said.
"There would be uncertainty and considerable administrative difficulty in determining applications which are made each year in substantial numbers."
The department was therefore authorised to exclude SCV holders.
The advocacy group OzKiwi said acts and regulations regarding "permanent resident" each had different definitions and Justice Garde had used the most restrictive in an apparent breach of the state's Charter of Human Rights and responsibilities.
The charter requires the adoption of the statutory interpretation that least infringes rights.
The judge also said that while more than a million Kiwis arrived on short-term visits, only 60,293 came as permanent or long-term arrivals.
OzKiwi said the short-term visits included multiple journeys and did not take into account the 600,000 New Zealanders already living there.
Immigration Department figures showed that about 52 per cent of New Zealanders in Australia had been there 12 months or more, and almost 68 per cent said they were permanent residents on their arrival cards.
OzKiwi is raising money for an appeal.
In another recent decision the federal Administrative Appeals Tribunal has held that New Zealanders lose their right to paid parental leave if they leave Australia for even a day.
The tribunal said the entitlement to parental leave for up to 18 weeks ceased the moment a Kiwi left the country because the SCV was cancelled on departure, ending residency requirements for payments.
Only New Zealanders are affected. Other residents can leave Australia for up to 13 weeks.
The rules
*New Zealanders are allowed to live and work indefinitely in Australia, but are admitted on special category visas that deny them access to most government assistance and study programmes.
*This includes a new decision that stops paid parental leave immediately after a Kiwi boards a plane, for even a brief holiday to show a baby to family.
*In Victoria, New Zealand students are barred from obtaining concessional tickets for buses, trains and trams.
