Mr Justice Laws said that a regulation used by the Government to block payments pending legal challenges over benefits awards was legally flawed and that Mr Lilley had been engaged in "an illegitimate exercise".
The ruling was a victory for the Child Poverty Action Group, on behalf of Paul Sutherland, l8, of Swansea, who is partially blind and a student at Aberystwyth University.
A CPAG legal officer, David Thomas, said: "Since the regulation was introduced in 1992, the Secretary of State has suspended benefit in similar circumstances in tens of thousands of cases. It always seemed to us quite wrong that claimants should be denied ongoing benefit - to which they have a legal entitlement - just because a court in another case might in the future interpret the law differently.
Mr Lilley was refused leave to appeal and will now consider renewing his application direct to the Court of Appeal.
In January last year, Paul's mother won a ruling from an adjudication officer that Paul was entitled to disability living allowance for his care needs at "the middle rate".
The right to that payment had been established in an earlier case known as Halliday. But payments to Paul were withheld while Mr Lilley appealed against the Halliday ruling.
That appeal was lost in the Court of Appeal in June last year, but Paul's full benefit entitlement remained suspended while Mr Lilley took his case to the House of Lords.
That renewed appeal is due to be heard in early December but Paul is still owed some pounds 2,000 in suspended payments.
Mr Justice Laws said that the regulation Mr Lilley had relied on (incorporated in the 1987 Social Security Regulations) was outside the law.
He held that the legislation under which the regulation was made did not allow payments to be blocked while the courts were deciding whether "an award ought to be revised now or in the future".
The judge warned Government ministers: "Where the executive has been allowed by the legislature to make law, it must abide strictly by the terms of its delegated authority."
Later Mr Justice Thomas said: "The Secretary of State has used the power he claimed to have in over 50,000 cases ... The effect of this judgment is that he didn't have power to do that."
Jill Allen-King of the National Federation of the Blind said: "It's a big breakthrough."Reuse content