State regulators have dropped a 1979 rule that generally required a half-mile distance between liquor retailers.
The Detroit News says the change by the Michigan Liquor Control Commission occurred Thursday.
A trade association that represents stores has filed a lawsuit, saying the commission was required to hold a public hearing.
Auday Arabo, president of the Associated Food and Petroleum Dealers, compared the commission's actions to that of a dictator.
Supporters of the half-mile restriction say it protects communities and gives retailers some room against potential competitors.
But the commission says the half-mile rule discriminates against qualified applicants.
The commission must respond to the lawsuit within seven days.