(Adds reaction from college)

April 4 (Reuters) - A U.S. appeals court, for the first time ever, on Tuesday ruled that federal civil rights law protects lesbian, gay, bisexual and transgender employees from discrimination in the workplace.

The ruling from the 7th U.S. Circuit Court of Appeals in Chicago represents a major legal victory for the gay rights movement.

In its 8-3 decision, the court bucked decades of rulings that gay people are not protected by the milestone civil rights law, because they are not specifically mentioned in it.

"For many years, the courts of appeals of this country understood the prohibition against sex discrimination to exclude discrimination on the basis of a person's sexual orientation," Chief Judge Diane Wood wrote for the majority. "We conclude today that discrimination on the basis of sexual orientation is a form of sex discrimination."

The ruling also allows a lawsuit to go forward in Indiana, where plaintiff Kimberly Hively said she lost her community college teaching job because she is lesbian.

"I have been saying all this time that what happened to me wasn't right and was illegal," Hively said in a statement released by the gay rights legal organization Lambda Legal, which represents her.

In its decision to reinstate Hively's 2014 lawsuit, which was thrown out at the local level in Indiana, the Court of Appeals ruled that protections against sex discrimination in Title VII of the Civil Rights Act of 1964 protect people from job discrimination based on their sexual orientation.

In so doing, the full appeals court overruled a decision by a smaller panel of its judges to uphold the district court's decision in the college's favor.

To reach its conclusion, the court examined 20 years of rulings by the U.S. Supreme Court on issues related to gay rights, including the high court's 2015 ruling that same-sex couples have a right to marry, Wood wrote.

The Supreme Court has not yet ruled on the question of whether the Civil Rights Act protects gays and lesbians, she wrote.

The three dissenting judges said the majority had inappropriately used its own power to change the civil rights law, which does not explicitly protect people on the basis of sexual orientation, and which for decades has been interpreted as excluding that protection.

"Today the court jettisons the prevailing interpretation and installs the polar opposite," Judge Diane Sykes wrote in dissent.

In her lawsuit, Hively said that Ivy Tech Community College in South Bend passed her over for a permanent position and refused to renew her contract as an adjunct professor after school administrators learned she is a lesbian.