The move stalls Egypt's attempt to rebuild after the revolt that toppled longtime strongman Hosni Mubarak last year.
The court order stated that parliament must elect 100 "qualified" people from outside the parliament to write the constitution.
A newly created assembly must include members representative of Egypt's "political and social map" according to the court order.
Lawsuits were brought against the former panel stating that it did not reflect the diversity of the Egyptian society and was highly dominated by Islamists who have won the majority of the parliament seats.
Egyptians took to the streets for weeks protesting last month's choice of the former panel fearing that Islamists would draft a constitution that follows strict Islamic rules.
Al-Azhar Institution, one of the most influential Islamic entities and the Egyptian Coptic Orthodox Church had also objected to the assembly.
Several liberal and secular members of the former constitution assembly had earlier withdrawn because of the criticism.
Sameh Ashour, the head of the lawyer's syndicate, was one that withdrew days before the court order.
"The assembly was unrepresentative of Egyptians. Members of parliament will now decide on the criteria and conditions of the new members that they will elect accordingly," said Ashour.
The disbanded group did not include a significant amount of women or young professionals.
The new constitution was scheduled for completion before the presidential elections on May 23.
Leading members of the Freedom and Justice Party released statements confirming their acceptance of the court order.
"Parliament will discuss tomorrow the new process of choosing the 100-Egyptians who will write the country's most important guide to governance so they must be careful in their choices and it must include constitutional lawyers and experts this time around," Ashour told CNN.