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The panel of five judges on the East African country's Constitutional Court said the speaker of parliament acted illegally when she allowed a vote on the measure despite at least three objections over lack of a quorum, the AP reports.
"The speaker was obliged to ensure that there was quorum," the court said in its ruling. "We come to the conclusion that she acted illegally."
The ruling was made before a courtroom packed with Ugandans opposing or supporting the measure. Activists erupted in loud cheers after the court ruled the law is now "null and void."
Ugandan lawyer Ladislaus Rwakafuuzi, an attorney for the activists, said the ruling "upholds the rule of law and constitutionalism in Uganda."
Kosiya Kasibayo, a state attorney, said a decision had not been made on whether to appeal the ruling in the Supreme Court.
The anti-gay measure provided for jail terms of up to life for those convicted of engaging in gay sex. It also allowed lengthy jail terms for those convicted of the offenses of "attempted homosexuality" as well as "promotion of homosexuality."
Although the legislation has wide support in Uganda, it has been condemned in the West and rights groups have described it as draconian. The U.S., which wants the law repealed, has withheld or redirected funding to some Ugandan institutions accused of involvement in rights abuses.
The law was passed by lawmakers in December and enacted in February by Ugandan President Yoweri Museveni, who said he wanted to deter Western groups from promoting homosexuality among African children.