A petition was moved by BJP's National Secretary Farooq Khan before the Division Bench of Justices Tashi Rabstan and Bansi Lal Bhat challenging the order passed by Justice Hasnain Masoodi upholding a government circular which asked all constitutional authorities to hoist the state's flag atop their official buildings and vehicles.
After hearing arguments, the Division Bench stayed the order of the single bench.
A detailed order was awaited.
Jammu and Kashmir has a separate flag as the state enjoys special status in the Constitution of India.
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The development triggered a political storm with former Chief Minister Omar Abdullah tweeting, "..So long as J&K is a part of India the two flags will continue to fly & we'll take pride in it... Having a state flag accepted & recognised by the Constitutions of India & J&K is NOT Azadi. Jeez!"
BJP, an ally of PDP, has had a stand of 'ek vidhan, ek nishan, ek pradhan' (One Constitution, One Flag, One leader).
Ruling PDP said the state's flag was not in conflict with the national flag and both will be respected in the state.
"They are as per the Constitution of the country and the state and will be respected accordingly," PDP chief spokesman Mehboob Beg told PTI.
"The state flag was hoisted along side the national flag even when Prime Minister Narendra Modi attended the swearing-in ceremony" of Mufti Sayeed in Jammu in March last year, Beg said.
Union Minister and BJP leader Jitendra Singh said, "Notwithstanding everything else, the immediate responsibility of all of us is to respect the orders of the court."
He said the PDP-BJP coalition government is "capable enough to deal with any kind of situation and therefore, I think there is every reason for the people of J&K to feel re-assured."