The UK has agreed to hand Mauritius the Indian Ocean archipelago, which is home to a strategically important naval and bomber base on the largest of the islands, Diego Garcia.
The UK would then lease back the base for at least 99 years.
US President Donald Trump's administration, which was consulted, gave its approval, but finalising the deal was delayed by last-minute negotiations over costs.
The agreement was due to be signed on Thursday morning at a virtual ceremony.
But a High Court judge granted an injunction in the early hours of Thursday putting a hold on the agreement.
It came in response to a claim by two women representing the islands' original residents.
"The defendant is to maintain the jurisdiction of the United Kingdom over the British Indian Ocean Territory until further order," Judge Julian Goose said.
Another court hearing is set for later in the morning.
Britain split the islands away from Mauritius, a former British colony, in 1965, three years before Mauritius gained independence, and called the Chagos archipelago the British Indian Ocean Territory.
In the 1960s and 1970s Britain evicted up to 2000 people from the islands so the US military could build the Diego Garcia base. Many moved to Britain.
Under the draft deal, a resettlement fund would be created to help displaced islanders move back to the islands, apart from Diego Garcia. Details of any such measures remain unclear.
Mauritius has long contested Britain's claim to the archipelago and in recent years the United Nations and its top court have urged Britain to return the Chagos to Mauritius.
Britain agreed to do so in a draft deal in October, but that was delayed by a change of government in Mauritius and reported quarrels over how much the UK should pay to lease the base.
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