Theresa May cannot trigger Brexit without putting it to an MPs' vote in the House of Commons, the High Court has ruled.
In a landmark ruling, Lord Chief Justice Thomas said Mrs May did not have the right to set in motion Article 50, the official start of the two-year European Union divorce proceedings, without consulting Parliament.
The decision is a significant setback for the Prime Minister's Brexit strategy - she revealed at the Conservative Party Conference last month she would trigger Article 50 by the end of March.
The Government immediately announced it would appeal against the ruling and the two sides will now prepare for another showdown at the Supreme Court in early December.
A Downing Street spokeswoman said it was the PM's intention to stick to the end of March deadline for Article 50.
Speaking outside the court, businesswoman Gina Miller, who brought the case with hairdresser Deir Dos Santos, welcomed the decision and said it would "bring sobriety" to Brexit proceedings.
In a statement, Mr Dos Santos who voted to leave the EU, said: "In her speech to the Conservative Party Conference the Prime Minister attacked me for bringing these proceedings as a claimant. She said that I was trying to subvert democracy. That was an unwarranted and irresponsible attack.
"As is my constitutional right I sought the protection of the court to stop unlawful government action. The court has now given me that protection."
The ruling saw the pound jump more than 1% against the dollar, at $1.24, in the immediate wake of the High Court announcement.
Unless the decision is overturned by the Supreme Court, or on further appeal to the European Court of Justice, then it will be for MPs to decide when to start the UK's exit from the EU.
Around two-thirds of MPs voted Remain but many will be reluctant to overturn the public's decision. However, in constituencies where people voted Remain MPs could come under pressure from their voters to block Article 50.
It will allow MPs to refuse to start divorce proceedings until they are happy with the precise terms of the Brexit deal and the SNP MPs are likely to play a key role.
Some Tory MPs suggested Mrs May should call a general election if MPs attempt to block Article 50 to increase her majority.
But Downing Street refuted that idea, saying: "Our position has been clear. There should not be an election before 2020. That remains the PM's view."
Speaking in the House of Commons moments after the ruling, International Trade Secretary Liam Fox said: "The Government is disappointed by the court's judgement.
"The country voted to leave the European Union in a referendum approved by Acts of Parliament. The Government is determined to respect the result of the referendum.
"This judgement raises important and complex matters of law and it's right that we consider it carefully before deciding how to proceed."
Opposition leaders Nicola Sturgeon, Tim Farron and Jeremy Corbyn, who have been calling for Mrs May to lay out her Brexit strategy more clearly, welcomed the ruling.
Labour leader Mr Corbyn said: "This ruling underlines the need for the Government to bring its negotiating terms to Parliament without delay.
"Labour respects the decision of the British people to leave the European Union. But there must be transparency and accountability to parliament on the terms of Brexit."
Ms Sturgeon said Scotland could join the Brexit court battle to make sure Mrs May does not win back the power to trigger Article 50.
The First Minister said: "We'll be looking at the judgement very carefully and yes we will actively consider whether or not there is a case for the Scottish government to become participants in that case."
UKIP leader Nigel Farage said: "I now fear that every attempt will be made to block or delay the triggering of Article 50. If this is so, they have no idea of the level of public anger they will provoke."
Bank of England Governor Mark Carney said the judgement was "an example of the uncertainty that will characterise this process".
The Vote Leave campaign chief Dominic Cummings said the Government had failed to make a decent case and should not appeal against the judgement which was "at heart" reasonable.
The case has centred around the wording of Article 50 of the Lisbon Treaty, which says a member state may leave the EU "in accordance with its own constitutional requirements".
However, there are no clearly established "constitutional requirements" leaving both sides free to make their own definitions.
Making his judgement, the Lord Chief Justice said: "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."
Mrs May will discuss the Brexit process with European Commission president Jean-Claude Juncker on Friday in a phone call.