The court took the decision after reviewing an appeal filed by 17 rights groups against the controversial decree passed on June 13.
“The decision creates extraordinary powers that have no basis in law,” the groups had said in a statement, describing the order as “a blatant circumvention of the official end of the state of emergency.”
“The decision could put in place far worse restrictions than those of the state of emergency,” the statement said.
The military has said the decree was necessary after the end of a decades-long state of emergency while the army remained on the streets.
The decision infuriated activists and protesters, who have campaigned for years for an end to the state of emergency, which granted police wide powers of arrest and was often used to curb dissent.
Ousted president Hosni Mubarak had called in the army during an uprising last year in which protesters torched police stations. The military is scheduled to hand power to president-elect Mohamed Morsi on June 30.