The ruling reinstates Patricia De Lille's membership in the Democratic Alliance (DA), South Africa's largest opposition party, securing her seven-year-old position as mayor and on the city council as well.
High Court judge Andre le Grange ruled that the party had failed to follow proper procedures in withdrawing the mayor's membership, a move that was invalid and illegal.
"The party was required to give her an opportunity to submit evidence," le Grange said. "(...) It follows that on this ground alone, the cessation of Ms De Lille's membership cannot stand."
The party rescinded De Lille's membership last month over a radio interview in which she indicated her intention to quit the DA as soon as she "had cleared her name."
The leadership of South Africa's second city has become a power struggle within the DA ahead of national elections next year.
In May, the DA established a "recall clause" to unseat De Lille as mayor but this decision was also revoked by another court.
Allegations of corruption and financial mismanagement have marred De Lille's tenure as the city's sixth mayor.
She has been accused of exposing the city to financial and reputational risk and of poor management of the city's water crisis. Cape Town has been battling a drought, flash floods and high crime rate.
The DA's deputy chairperson of the federal council, Natasha Mazzone, said the party would possibly take the ruling to appeal.
"We will study the judgment and consider further legal options including the possibility of an appeal," adding that the mayor "remains subject to our disciplinary procedures"
But an "energised" De Lille remained undeterred, claiming the ruling as a "victory for the people of Cape Town"
"I will stay in the Democratic Alliance until they find a legal way to get rid of me," she said.
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