The court's decision is a huge blow to Britain's Conservative government, which promptly announced it would go to the Supreme Court to appeal the ruling.
"The government is disappointed by the court's judgment," the right-wing government said in a statement. "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."
In theory, parliament could block Brexit altogether. But few people expect that outcome, given that the British people voted by 52 to 48 percent to leave the EU in a referendum in June.
Sterling rose on the news, with many investors taking the view that lawmakers would temper the government's policies and make an economically disruptive "hard Brexit" less likely.
Lawmakers largely voted to remain in the EU in the June referendum, and many investors believe greater parliamentary involvement in the process would therefore reduce the influence of ministers in Prime Minister Theresa May's government who are strongly pro-Brexit.
This could reduce the likelihood of a "hard Brexit", a scenario in which Britain prioritises tight controls on immigration over remaining in the European single market.
However, the ruling makes the already daunting task of taking Britain out of a club it joined 43 years ago even more complex. It also puts at risk May's own deadline of starting formal negotiations on the terms of Brexit by the end of March.
Several claimants were behind today's Brexit case ruling, which has major constitutional implications, hinging on the balance of power between parliament and the government.
The claimants argued that leaving the EU will remove rights -- including free movement within the bloc -- which can't be done without parliament's approval.
Three senior judges ruled that "the government does not have the power under the Crown's prerogative" to start EU exit talks.
The case is considered the most important constitutional matter in a generation.
Underscoring the importance of the case, May put Attorney General Jeremy Wright in charge of the legal team fighting the claim. Wright argued that the lawsuit was an attempt to put a legal obstacle in the way of enacting the result of the June 23 referendum.
The prime minister is relying on a power called the 'royal prerogative' that lets the government withdraw from international treaties. May wants to use the historic powers officially held by the queen, to trigger Article 50 of the EU's treaty, which starts the two years of talks before Britain's departure from the EU.
The powers, which are in reality now in the hands of politicians, enable decisions to be made without a parliamentary vote.
Historically, royal prerogative has also applied to foreign affairs and the negotiation of treaties.
Plan to scupper Brexit?
Nigel Farage, head of the anti-EU party UKIP, said on Twitter that he feared the ruling could turn into an attempt to scupper Brexit altogether.
"I worry that a betrayal may be near at hand," he said.
"I now fear every attempt will be made to block or delay triggering Article 50. They have no idea (of the) level of public anger they will provoke."
(FRANCE 24 with AP, REUTERS)