LONDON (Reuters) - Britain's opposition Labour Party won the right to exclude new members from voting in its ongoing leadership contest on Friday after a successful legal appeal - a decision which party leader Jeremy Corbyn criticized as legally and democratically wrong.

The party has been in turmoil since Britain's June 23 vote to leave the European Union, with veteran left-winger Corbyn's position being challenged by fellow lawmaker Owen Smith.

The row has ended up in the courts after the party's executive committee ruled last month that members who had joined the party since Jan. 12 would not be eligible to vote unless they paid a further 25 pounds ($32).

An appeal court on Friday said the party was legally able to do so, overturning an earlier court ruling that it was unlawful.

Critics say the increasingly bitter contest is distracting the party at time when it should be pushing its priorities onto the agenda for the government's Brexit negotiations and exploiting divisions in the ruling Conservative Party.

The full impact of the decision on the leadership race is unclear: whilst Smith is backed by most of Labour's elected lawmakers, Corbyn is strong favorite to win the contest thanks to widespread support at grassroots level.

"We think that this is the wrong decision - both legally and democratically," a spokesman for Corbyn's campaign said. "If we are to build a big, inclusive party to take on the Tories (Conservatives), we need to secure democracy in our party."

Local media reported the decision would affect around 130,000 members, and bookmakers' odds on Smith winning improved slightly after the ruling. The outcome of the leadership election is expected on Sept. 24.

Smith, who has warned that the party could split if Corbyn wins the leadership election, said the ruling would not affect his campaign's approach.

(Reporting by William James; editing by Stephen Addison)