The court's ruling, which cannot be appealed, prompted celebratory gunfire in the capital Tripoli, which has been held by Islamist-led militia since August, an AFP correspondent reported.
But it piled further pressure on the government of Prime Minister Abdullah al-Thani which is holed up in the remote eastern town of Tobruk near the Egyptian border and has almost no control over Libya's three main cities.
The court had been asked by an Islamist lawmaker to rule on the constitutionality of the parliament elected in June that approved Thani's government, one of two rival administrations in the North African country.
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Abderrauf al-Manai, who with other Islamist lawmakers has boycotted the parliament's sessions in Tobruk, argued that the legislature was in breach of the constitution because it was sitting in neither Tripoli nor second city Benghazi.
He had also argued that the parliament had exceeded its authority in calling for foreign military intervention after the militia takeover of the capital.
Benghazi too is largely under the control of Islamist militias, among them Ansar al-Sharia, blacklisted by Washington as a terrorist group for its alleged role in a deadly 2012 attack on the US consulate in the eastern city.
