The injunction could delay the introduction of a constitution needed urgently to clarify the powers of Egypt's new head of state, due to take over from ruling generals by mid-year.
Selected by parliament, the 100-member constitutional assembly is composed mostly of Islamists, who won the majority of seats in Egypt's first free parliamentary vote in decades.
The case, brought by lawyers and activists, follows several lawsuits demanding the dissolution of the assembly on the grounds that it fails to represent Egypt's diversity.
The administrative court said the constitutional decree laid out after the army took power and suspended the current constitution did not allow members of either house of parliament to take part in the assembly to draw up the new charter.
It said the decree "did not even permit the executive authority or the houses of parliament to comment on how the assembly will end up, so the destiny of the constitution would be up to people's opinion through a referendum".
Zaghloul al-Balshy, a senior judge not involved in case, told Reuters that ruling meant "the make-up of the assembly has to be reconsidered and the new representation has to represent the entire society".
Rights activist Youssef Abdel Khalek hailed the ruling - even though it is likely to face appeals back and forth before it is eventually finalised by a higher court.
"This ruling will allow the Egyptian people to protect the January 25 revolution from the hegemony of the Islamist current and from the Muslim Brotherhood that seeks to polarise and bar civilian politicians who participated in the revolution," he said.
The latest dent to the body's authority drew a measured response from the Muslim Brotherhood, the Islamist movement which holds most seats in parliament and chairs the assembly.
"I respect all rulings and call on all national forces to sit together to reach better solutions to overcome this crisis," Brotherhood presidential candidate Khairat al-Shater said in a statement on the movement's website.
Assembly head Mohamed Saad al-Katatni, the Muslim Brotherhood parliament speaker, cancelled the assembly meeting due to be held on Wednesday, state radio reported.
Only a handful of seats on the body were reserved for youth groups, women and for Christian Copts, who have said they plan to boycott the assembly, following liberal groups and the country's highest Sunni Islamic institution, al-Azhar, who all withdrew from the assembly.
A representative of Egypt's Supreme Constitutional Court has also withdrawn in protest.
Lawyers for the state said the administrative court should have no say over parliament's move to form the assembly.
The court's judge, Ali Fekri, rejected legal arguments saying it was not qualified to rule on the issue and said it had decided to suspend the decision that formed the assembly.
He passed on the case's documents to a judicial panel for a review.
"We expect parliament to appeal the verdict before the supreme administrative court but until the appeal gets ruled on, the current constitutional committee has no existence," said the main lawyer in the team who filed the case, Essam al-Islamboly.
The current constitution was suspended by the army in February last year, shortly after it took power from Egypt's long-serving autocratic president, Hosni Mubarak, who was forced out by a popular uprising.
The new constitution will define the balance of power between parliament and the president, the influence of sharia law over statute and society and the extent of the army's influence over the government and freedom from supervision.
An army representative attending the assembly's second meeting last week urged political powers to put their differences aside and said the constitution writing process would not delay handing power to an elected president.