The five, who deny involvement in terrorism, had challenged financial sanctions imposed on them under two laws enacted by the government as "orders in council" to implement U.N. accords, a form of legislation that does not need parliament's approval.

High Court judge Andrew Collins said the first order relied on suspicion -- as opposed to proof -- and the second gave people no chance to challenge a U.N. sanctions listing because they were not told what they were alleged to have done wrong. "I take the view that both the ... orders as they stand are not lawful," he said.

Under United Nations resolutions, member states must freeze the assets of hundreds of people on a U.N. list of suspected al Qaeda and Taliban associates, but Thursday's judgment took issue with the way in which Britain had implemented the measures.

The Treasury said it was disappointed and would appeal, pending which the asset freezes remain in force.

When Treasury lawyer Jonathan Crow said quashing the orders could put Britain in violation of its duty under the U.N. Charter, the judge replied: "The government's only got itself to blame for that."

The ruling was a fresh headache for Prime Minister Gordon Brown, who was forced into a humbling climbdown on Wednesday over taxation of low earners. He also faces a threatened parliamentary revolt over plans to increase from 28 to 42 days the period for which arrested terrorist suspects can be held in custody before police have to charge them or let them go.

The government could find it hard to push through new laws on freezing suspected militants' assets even when they have not been convicted of any crime -- a feature of the U.N. sanctions regime which has been attacked by human rights groups.

The five men in Thursday's case, named in court only as A, G, K, M and Q, received identical letters which told them: "The Treasury has reasonable grounds to suspect that you are, or may be, a person who facilitates the commission of acts of terrorism. In the light of the sensitive nature of the information on which this decision was taken, we are unable to give you further details."

The men or their spouses require a licence from the Treasury to obtain welfare payments and must submit receipts for all household items. Anyone providing them with "funds, economic resources or financial services" is liable to prosecution and jail unless he or she has a licence to do so.

The men's lawyers said in a statement: "We have the madness of civil servants checking Tesco (supermarket) receipts, a child having to ask for a receipt every time it does a chore by running to the shops for a pint of milk and a neighbour possibly committing a criminal offence by lending a lawnmower."

Judge Collins criticised the "absurdity" of a case where the Treasury had refused a licence to one man to borrow a car in order to go to a supermarket to buy groceries for his family.

U.N.-ordered terrorism sanctions are already being challenged in the European Union's Court of Justice. The parliamentary assembly of the Council of Europe, the continent's top human rights watchdog, said in January that the U.N. and EU sanctions regimes were deplorable and undermined the credibility of the fight against terrorism.