The verdict gives way to a controversial maritime demarcation deal between Cairo and Riyadh, where the ownership of the strategic islands of Tiran and Sanafir is transferred from Egypt to the monarchy.
The constitutional court ruled that the administrative court has no jurisdiction over the matter, rather that lies with parliament.
Parliament approved the agreement in a vote last week.
The signing of the agreement in April 2016 triggered a series of protests rarely seen in Egypt since the presidential election in 2014.
In January, the Supreme Administrative court upheld a lower court ruling banning the handover, arguing that the two unpopulated islands are Egyptian territory.
Wednesday's verdict also included annulling a ruling by an urgent matters court that had suspended the administrative court's decision.
