Three senior judges of the High Court in London ruled that Prime Minister May did not have the right to use her executive power to trigger Article 50 of the Lisbon treaty.
They ruled that Parliament must vote on whether the UK can start the process of leaving the European Union (EU).
This effectively means May cannot trigger Article 50 of the Lisbon Treaty to begin formal discussions with the EU without getting the approval of House of Commons MPs.
The government said it will appeal the court ruling in the Supreme Court.
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"We will appeal this judgment," said a statement from Prime Minister's office. "The country voted to leave the European Union in a referendum approved by Act of Parliament."
The challenge had been brought by a group of businesses led by investment manager Gina Miller, whose lawyersargued that the government cannot trigger Article 50 of the Lisbon Treaty unilaterally despite a public referendum in favour of leaving the European Union (EU).
Ministers argued they can act under ancient powers of Royal Prerogative, the preserve of monarchies.
A judicial review of the issue in the HighCourtwas heard by the Lord Chief Justice of England and Wales, Lord Thomas, who announced their ruling today.
It has already been announced that any appeal will be fast-tracked to the SupremeCourtto ensure a final judgement before the end of the year.
This follows the UK's decision to backBrexitin June's referendum by a margin of 51.9 per cent to 48.1 per cent.
The EU's other 27 members have said negotiations about the terms of the UK'sexit- due to last two years - cannot begin until Article 50 has been invoked.
According to official government documents published recently, ministers believe the use of prerogative powers once held by the Sovereign but now residing in the executive to enact the referendum result is "constitutionally proper and consistent with domestic law".