The Supreme Administrative Court decided in favour of petitioner Khaled Ali, a rights lawyer, who had sought nullifying of the justice ministry decree, Ahram online reported.
The justice ministry had issued a decree on June 13 giving military personnel the right to arrest civilians, a right previously reserved for police officers.
According to the law, the military police and intelligence could exercise the power in crimes like 'misdemeanours harmful to the government', 'resisting orders issued by those in power or assaulting them,' 'destruction of public property or historic monuments', and 'intimidation and thuggery', among others.
The law, that came at a time when the military administration is in the process of transferring power to a civilian set up following a revolution, was heavily criticised by right groups.
According to the ministry, the decree will remain in effect until a new constitution is drafted.
A tussle is already taking place between the ruling military, that appears reluctant to relinquish much power, and political groups who contested the parliamentary election.
The dissolution of the recently elected parliament by a court and the subsequent taking over of legislative powers by the military was seen by the civilian leaders as an infringement.
