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.
"The government does not have power under the Crown's prerogative to give notice pursuant to Article 50 for the UK to withdraw from the European Union," the Lord Chief Justice of England and Wales, Lord Thomas, ruled.
The judges 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.
May had argued the public referendum in favour of Brexit on June 23 and ministerial powers mean MPs do not need to vote, but campaigners had argued this was unconstitutional.
"The country voted to leave the European Union in a referendum approved by Act of Parliament. And the government is determined to respect the result of the referendum. We will appeal this judgement," a government spokesperson said.
Describing the decision as disappointing, international trade minister Liam Fox told the House of Commons: "There will be numerous opportunities for the House to examine and discuss what the government is negotiating.
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).
"The result today is about all of us. It's not about me or my team. It's about our United Kingdom and all our futures," Miller said after the judgement.
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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.
May had announced that she will activate Article 50, formally notifying the EU of the UK's intention to leave, by the end of next March.
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".
Their argument is that the "decision to withdraw from the EU is not justiciable. It is a matter of the highest policy reserved to the Crown".
