The Special Immigration Appeals Commission on Monday blocked the extradition order, saying it could not be guaranteed that Qatada would get a fair trial. He is expected to be released from prison on bail on Tuesday but under tight restrictions.
In a statement, Britain's Home Office says it strongly disagrees with the ruling and is planning to appeal.
Qatada was convicted in Jordan in 1998 in absentia of terrorism charges related to two bomb plots.
Home Secretary Theresa May had ordered his extradition after being given assurances by Jordan that no information obtained through torture would be used against him.
British officials have described Qatada, who arrived in Britain in the 1990s, as Osama bin Laden's top European deputy for al-Qaeda terrorism. He has been detained in Britain for most of the past decade under the country's anti-terrorism laws.
Britain has been trying to deport Qatada since 2001, but its efforts have repeatedly been blocked by the courts. In January, the European Court of Human Rights ruled against the deportation because evidence used against him in Jordan may have been obtained using torture.