Judges at the European Court of Human Rights (ECHR) said random stop and search powers under Section 44 of the Terrorism Act 2000 lack legal safeguards against abuse.
Home Secretary Alan Johnson said the European ruling would be challenged and police will still be able to use the powers.
"Stop and search under Section 44 of the Terrorism Act 2000 is an important tool in a package of measures in the ongoing fight against terrorism," he said.
"I am disappointed with the ECHR ruling in this case as we won on these challenges in the UK courts, including in the House of Lords.
"We are considering the judgment and will seek to appeal. Pending the outcome of this appeal, the police will continue to have these powers available to them."
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