Developers wanted to uproot the 400-year-old Bethnal Green Mulberry Tree, which survived being bombed in the Blitz, to build flats on the site of the former London Chest Hospital.
Tower Hamlets council granted permission for almost 300 homes on the site next to Victoria Park and developer Crest Nicholson said the tree would be picked up by the root base and “replanted it in its entirety” elsewhere.
But campaigners argued this would kill the tree and the East End Preservation Society's Geoffrey Juden led a legal challenge against the local authority to stop the development.
On Friday High Court judge Sir Duncan Ouseley said the council's planning committee had "misinterpreted" planning policy when it considered whether the tree would die if it was moved and the "material consideration was ignored".
An East End Society spokesman said: "Crest Nicholson’s overblown development would have blighted the Victoria Park Conservation Area in East London for generations to come.
“It demolished a listed building, removed a large number of mature trees and delivered far too few affordable homes.
“The Bethnal Mulberry is the oldest tree in the East End, surviving plague, fire and blitz.
“We hope it will flourish for centuries to come to inspire us all.”
The society also thanked Dame Judi who acted as a patron of its campaign and said the idea of digging up the tree "filled her with horror".
A Crest Nicholson spokesman said: “We are surprised and disappointed by the ruling passed down from the judicial review regarding the redevelopment of the former London Chest Hospital.
We remain fully committed to the development and we will be reviewing the judgement.
Tower Hamlets Council added: “We acknowledge the high court decision to quash our original approval for planning and listed building consent for a development of 291 new homes, of which 35 percent were affordable, at the London Chest Hospital site.”