The country's government had withheld social benefits from migrants if their children still lived in their home country.
An EU court has ruled that Austria broke the bloc's laws by cutting benefits to migrants whose children live in their home countries.
The Court of Justice of the European Union found that the 2019 policy was unfairly discriminatory.
The country's former populist government had introduced the reform linking family allowances to the place where children lived.
The measure had reduced benefits for tens of thousands of Eastern Europeans working in Austria, whose children had remained abroad.
Former Austrian Chancellor Sebastian Kurz had said he hoped the aid cuts would save €114 million a year, but by 2019 they had recouped just €62 million.
In 2020, the European Commission -- supported by six eastern member states -- brought an action against Austria.
On Thursday, the EU's top court said the mechanism constituted "indirect discrimination on grounds of nationality which is, in any event, not justified".
The ruling is the latest to condemn a series of measures introduced by Austria's former government between 2017 and 2019 which aimed to restrict migrants' access to social benefits.
Austria's Minister for Integration and Family Affairs Susanne Raab has previously stated that the government has already set aside the necessary funds to repay those affected by the law.
Karl Nehammer -- who became Austria's new Chancellor in December -- has also been criticised by NGOs for his strong stance on immigration and asylum-seekers.