After complaints from rival clubs in a sport dominated by lucrative TV rights and player contracts, France's Conseil d'Etat quashed a 2014 change in the league statutes to allow Monaco to compete without losing its fiscal base in the low-tax principality on France's southeastern border.
In that transaction, the Monaco club paid the French league 50 million euros (35.91 million pounds) in return for the rule change, allowing it to remain headquartered in the principality.
"The Conseil d'Etat rules irregular and illicit the deal in which the French Professional Football League (LFP) modified its rulebook in January 2014 to allow AS Monaco keep playing in the League 1 and 2 championships without being obliged to base its headquarters on French territory," a court statement said.
The court said it would allow the two sides four months to resolve the issue so as not to disrupt organisation of next season's competitions, with the ruling taking effect in October.
AS Monaco, which has played in the French league for more than a century, did not immediately respond to the ruling when contacted by Reuters for comment.
Monaco is an attractive proposition for players due to its tax-free status, although the deal struck with the LFP sparked legal action by several clubs including Marseille, Lille, Bordeaux, Montpellier, Caen, Lorient and Paris St Germain.
(Reporting By Brian Love; Editing by Andrew Callus/John O'Brien)
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