Two judges said Theresa May had unlawfully attempted to "side-step Parliamentary scrutiny" when setting the limits.
Lord Justice Sullivan and Mr Justice Burton declared that, as a result, no lawful limits were in place for two tiers of job applicants from abroad.
The ruling was a victory for the Joint Council for the Welfare of Immigrants (JCWI) and English Community Care Association, which was concerned over the position of immigrant care workers.
The interim cap on visas for Tier 1 (general) highly-skilled migrants and the number of certificates of sponsorship allowed for Tier 2 skilled workers were introduced in June-July.
The Government plans to introduced a permanent limit on non-EU workers next April.
Critics say today's ruling is important for British business as the current cap is damaging industry in the UK.
Richard Drabble QC, representing the JCWI, argued at the High Court in London that the Home Secretary acted outside her powers when she introduced changes to the immigration rules in the summer.
The changes were deliberately intended to give the minister flexibility and the ability to change the numbers allowed in to work, without having to go before Parliament for scrutiny.
Today Lord Justice Sullivan said: "The secretary of state made no secret of her intentions.
"There can be no doubt that she was attempting to side-step provisions for Parliamentary scrutiny set up under provisions of the 1971 Immigration Act, and her attempt was for that reason unlawful".
The changes introduced were substantive and should have been laid before Parliament.
The judge declared: "In my judgment no interim limits were lawfully published or specified by the secretary of state for either Tier 1 or Tier 2... and there is not, and never has been, a limit on the number of applicants who may be admitted either under Tier 1 or the number of certificates of sponsorship that should be issued to Tier 2 sponsors."
The Home Secretary introduced an interim cap for non-EU skilled workers of more than a fifth on 2009 levels, in line with a Conservative election commitment.
Today the judges cleared the way for the Home Secretary to attempt to appeal to the Supreme Court against today's ruling.
Immigration Minister Damian Green said: "I am disappointed with today's verdict. We will study the judgment and will appeal it, if we have grounds.
"We remain firmly committed to reducing net migration and will be introducing a permanent limit on non-European workers next April.
"We will do all in our power to continue to prevent a rush of applications before our more permanent measures are in place."
Kashif Majeed, principal at London-based legal firm Aston Brooke, which represented the interests of ECCA, said: "We are very happy for our client and JCWI."
He said the case, which was observed by a large group of female Filipino care workers, was a success for the sponsor employers.
"They are considered by their employers to be the backbone of the care industry."
Shadow home secretary Ed Balls said: "The Government's immigration policy is in a state of chaos.
"Their so-called cap may have sounded good before the election but it wasn't properly thought through and didn't get the scrutiny it deserved.
"Not only will it do little to control immigration, it also risks damaging British businesses.
"Cutting the number of border officers and staff by nearly a quarter raises serious questions about the security of our borders and whether the Government's policies can be enforced.
"And David Cameron's flagship election promise to bring net migration down to the tens of thousands has now been watered down from a firm pledge to just an aim."
Lawyers for the Home Secretary had argued that she had made a lawful policy decision.
The aim was to reduce the "adverse social and public service impacts of migration".
It was also to reduce employers' "over-reliance on migration, leading to an increase in training and job opportunities for resident workers".
At the same time it was intended to increase "the UK domestic skills base, and reduce welfare costs to the taxpayer through lower unemployment".
Prime Minister David Cameron has called for net migration - the difference between the number of people entering the UK and those emigrating - to be reduced from nearly 200,000 a year to "tens of thousands".
Shahram Taghavi, a solicitor with law firm Mishcon de Reya, which acted for the JCWI, said that, even before today's ruling, taking court action had affected Government immigration policy.
He said: "Following initiation of these judicial review proceedings, the Government announced several measures to 'water down' the immigration cap."
This included distinguishing between migrant workers already working in the UK for UK businesses and future migrants seeking to be recruited by British employers.
The Government was also attaching greater weight to highly-skilled roles attracting salaries in excess of those listed in the Government's own "shortage occupation list".
Mr Taghavi said: "There appears to be clear recognition of the detrimental impact on UK businesses by the introduction of the immigration cap, which was hurriedly implemented and which has already been condemned by leading business organisations."
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