The court found a “mass of evidence” showing that the fee prevents many children from registering for British citizenship.
This leaves them feeling “alienated, excluded, ‘second-best’, insecure and not fully assimilated into the culture and social fabric of the UK, ” Mr Justice Jay said.
Delivering the ruling, he said the Home Office "failed to have regard to the best interests" of children affected.
Young people currently face a £1,012 registration fee before they can formally become British citizens.
Applications cost the Home Office £372 with the additional £640 used to subsidise the immigration system.
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