Libya’s parliament was internationally recognized.
The court said the parliament was unconstitutional, dealing a blow to Libya’s elected government, which is operating in the country’s east.
The ruling was celebrated by militias occupying the capital Tripoli, who have set up an alternative parliament.
Politicians in Tobruk, the city near the Egyptian border where the parliament is now based, have repeatedly alleged that Tripoli’s courts, judges and their families have been under threat by the coalition of armed groups that controls the capital.
Prosecution lawyers who won Thursday’s case denied that claim.
The reason for the court’s decision is not yet clear. Those behind the challenge – a minority group of dissident lawmakers – say the parliament is unconstitutional because it does not sit in Tripoli or Benghazi, AFP news agency reports.
The group added that parliament had overstepped its authority by calling for foreign military assistance against the militias.
Libya has been plagued by instability since the overthrow of Colonel Muammar Gaddafi in 2011. Different groups now control most of the country including the two largest cities, Tripoli and Benghazi.
Islamist-leaning militias, some of them remnants of forces which helped oust Muammar Gaddafi, have been fighting for power among themselves.
Recent clashes forced the country’s parliament to move to Tobruk.
The groups that took control of the capital in August attempted to reinstate Libya’s previous parliament and appoint a parallel government, but this has not been recognized internationally.
Meanwhile, a cousin of Muammar Gaddafi has said that former regime figures are planning to return to Libya within two months.
Ahmed Gaddaf al-Dam told the Times newspaper that they would return once government forces regained control of the country’s major cities.
He claimed exiled supporters of Muammar Gaddafi were in talks with parliament, despite it being forced out of the capital.
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