The judgement by a three-judge bench is seen as a major setback for the Trump Administration which argued that executive order was a major step to prevent entry of radical Islamic terrorists from entering the country.
Trump soon reacted to the court order in his tweet.
"SEE YOU IN COURT, THE SECURITY OF OUR NATION IS AT STAKE!" Trump wrote indicating that he is deeply disappointed on the decision of the San Francisco-based Ninth Court of Appeal.
The San Francisco Court had held an oral hearing on the case early this week. The bench included Judges William C Canby Jr, Richard R Clifton, and Michelle T Friedland.
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"We hold that the government has not shown a likelihood of success on the merits of its appeal, nor has it shown that failure to enter a stay would cause irreparable injury, and we therefore deny its emergency motion for a stay," the judges said in an unanimous order.
"In short, although courts owe considerable deference to the President's policy determinations with respect to immigration and national security, it is beyond question that the federal judiciary retains the authority to adjudicate constitutional challenges to executive action," the judges said.
In a brief interaction with reporters after the judgement, Trump described this as a political decision.
"It's a political decision, and we're going to see them in court. This is just a decision that came down, but we're going to win the case," Trump was quoted as saying by NBC news.
"The Constitution wins," said Indian-American Congresswoman Pramila Jayapal, who was one of the leading Democratic lawmakers against Trump's executive order.
"This is an enormous victory for democracy and for families in our country and around the world. The justices unanimously rejected the idea that they should narrow the temporary restraining order based on geography or scope. They signalled that this executive order will likely be overturned in higher court," Jayapal said.