The party's National Executive Committee had decided people who had been members for less than six months up to July 12 could not vote in the contest between embattled leader Jeremy Corbyn and relatively unknown challenger Owen Smith.
The High Court said the NEC's decision amounted to a breach of contract, in a ruling that would increase the voter base by around a quarter.
But Labour said it would take the decision to the Court of Appeal -- to the fury of socialist stalwart Corbyn's campaign, for whom the High Court verdict was seen as a huge boost.
Corbyn's campaign manager John McDonnell, Labour's finance spokesman, said the "deeply disappointing" decision to appeal taken by a "small clique" opposed to the leftist protest politics veteran.
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"What they think is a further attack on Jeremy... Is just an attack on the basic democratic rights of members in our party," McDonnell said.
"We are now in the absurd position that Labour HQ is wasting members' money to prevent members having a democratic vote on the leader."
Corbyn is the runaway favourite to win the contest.
Bookmakers William Hill immediately slashed their odds on Corbyn winning from 1/10 to 1/20 on the High Court verdict.
Labour is in deep crisis with Corbyn popular among the party's grassroots, but sharply at odds with an overwhelming majority of Labour MPs.
They believe he is an incapable leader driving them towards a third straight general election defeat.
A YouGov poll of 1,772 adults conducted between August 1 and 2 put Prime Minister Theresa May's Conservatives on 42 percent support, Labour on 28 percent and UKIP on 12 percent.
Smith, little known even in parliament until he announced his candidacy, called for an extension of the timetable in the leadership contest following today's events.