The NSW laws were swiftly implemented in February after a spate of anti-Semitic acts across Sydney and Melbourne, including graffiti, arson attacks and threats of personal violence.
But Palestine Action Group activist Josh Lees took the NSW government to the state's supreme court, arguing it was unconstitutional for police to have powers to move on protesters near places of worship.
The lack of clarity around the reach of the legislation or the definition of nearness meant it wasn't fit for purpose and would have a chilling effect on protesting, he argued.
NSW Supreme Court judge Anna Mitchelmore on Thursday agreed, ruling the provision was invalid and "impermissibly burdened the implied constitutional freedom of communication on government or political matters".
She found it went beyond what was necessary to achieve the protection of people entering and leaving a place of worship, rejecting the NSW solicitor-general's arguments it was fit for purpose.
The court ruling was hailed as a victory for democracy, common sense and the rule of law by the Australian Democracy Network.
"Today's ruling shows what faith leaders, other community members and legal experts said to the NSW government from the get-go - these laws were unnecessary, over-broad and risked criminalising peaceful protest in major public spaces," protest rights campaigner Anastasia Radievska said.
"We need to end the cycle of knee-jerk lawmaking that is not evidence-based, lacks consultation with communities, and results in unconstitutional legislation."
Mr Lees welcomed the judge's decision, which he said meant there was "one less obstacle" to protesting in the state.
"We said from the beginning that what (Premier) Chris Minns was doing was an outrageous overreach in trying to find some new way to ban protests in NSW," he said outside court.
"Now he has massive egg on his face."
When implementing the measures, Mr Minns was warned the laws would be problematic when many town squares had a church, including outside the Supreme Court itself.
But Labor instead listened to concerns from peak Jewish groups after rallies went past the Great Synagogue in Sydney's centre.
Mr Minns should never have made the "captain's call" to pass the laws and give police "unreasonable powers to be able to control the people on the streets", Greens MP Sue Higginson said.
The NSW premier said the government aims to strike "the right balance" between community protection and the right to political expression.
"While (the court ruling) is disappointing it is important to note that this does not mean there is free reign outside places of worship," Mr Minns said.
"The decision has no impact on the offence introduced recently in the NSW government's places of worship laws that make it a crime to impede, harass, intimidate or threaten a person accessing a place of worship."
At the time of their implementation, NSW Attorney-General Michael Daley said the boosted police powers would ensure people could practise their beliefs in safety.
The decision raised concerns about protests targeting synagogues, Executive Council of Australian Jewry co-chair Alex Ryvchin said.
"It's yet again a victory for these professional protesters who are doing their best to ruin this city of ours, and it's a defeat for the rest of us," he told Sydney radio 2GB.
"No right is unlimited ... we as Sydneysiders need to say enough is enough".
Mr Lees said the Palestine Action Group had not organised any protests outside places of worship but took issue with the law infringing on constitutional rights.
The group will continue to hold weekly protests as the recently announced ceasefire with Israel unfolds.
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