Guidance on who is eligible for legal aid in exceptional cases is “unlawful”, judges have ruled.
Legal aid was removed from many areas of civil law as part of reforms introduced last year.
The High Court had said the guidelines on who was still eligible were “too restrictive” and overturned refusals of legal aid in six immigration cases.
The government appealed against that decision but Court of Appeal judges have now upheld the original ruling.
Ruling on the guidance, Lord Dyson said: “It correctly identifies many of the factors that should be taken into account in deciding whether to grant exceptional funding, but it neutralises their effect by wrongly stating that the threshold for funding is very high and that legal aid is required only in rare and extreme cases.”
The Ministry of Justice (MoJ) said it would “carefully consider” its next steps following Monday’s ruling.
An MoJ spokesman said: “We continue to believe that the exceptional funding scheme is functioning as intended. Its purpose is to provide funding where it is legally needed.
“Legal aid is a vital part of our justice system but resources are not limitless and must be properly targeted at the cases that need it most.”