The ban in Villeneuve-Loubet “seriously and clearly illegally breached fundamental freedoms”, it found, including freedom of belief.
The ruling could set a precedent for up to 30 other towns that imposed bans on their beaches, chiefly on the Riviera.
The court will make a final decision on the legality of the bans later.
It is thought that the court’s decision means that all the bans on burkinis are likely now to be overturned but one mayor in Corsica has already vowed to keep the ban in place on his town beach.
Amnesty International has praised the decision against bans of burkini swimsuits, calling such decrees invasive and discriminatory.
John Dalhuisen, Amnesty International’s Europe Director, said in a statement: “By overturning a discriminatory ban that is fuelled by and is fuelling prejudice and intolerance, today’s decision has drawn an important line in the sand.”
A human rights lawyer said the decision should set a legal precedent for the whole country.
Lawyer Patrice Spinosi, representing the Human Rights League, said that other mayors who have banned burkinis must conform to the latest decision regarding the town of Villeneuve-Loubet. He also said women who have already received fines can protest them based on the decision.
“It is a decision that is meant to set legal precedent,” he said. “Today all the ordinances taken should conform to the decision of the Council of State. Logically the mayors should withdraw these ordinances. If not legal actions could be taken” against those towns.
“Today the state of law is that these ordinances are not justified. They violate fundamental liberties and they should be withdrawn.”
Human Rights League was among the groups that brought the lawsuit against the town of Villeneuve-Loubet, saying the orders infringe basic freedoms.
However, earlier the mayor of Sisco in northern Corsica said he would not lift his ban on the burkini despite a ruling by France’s top administrative court regarding a similar ban in another town.
Ange-Pierre Vivoni had banned the burkini after an August 13 clash on a beach in Sisco.
He said: “Here the tension is very, very, very strong and I won’t withdraw it.”
The bans have divided France’s government and society and drawn anger abroad, especially after images circulated online showing police appearing to force a Muslim woman to take off her tunic.
France banned clothing that covered the face in public places in 2011, and this summer, as vacation season peaks on the Riviera, that scrutiny has been directed toward the burkini.
The mayor of Cannes banned it from the city’s beaches last week, citing security concerns and saying the beachwear did not respect “good morals and secularism.” Soon after, the mayor of Villeneuve-Loubet banned the burkini for sanitary reasons.
The burkini bans have ignited fierce debate in France and worldwide.
Opinions polls suggested most French people backed the bans, which town mayors said were protecting public order and secularism.
Muslims said they were being targeted unfairly.
The controversy intensified after pictures and video of police appearing to enforce the ban by making a woman take off an item of clothing prompted widespread anger.
The court said local authorities did not have the power to restrict individual liberties in this way without “proven risk” to public order.