The judgement by a three-judge bench is seen as a major setback for the Trump Administration which argued that executive order was a major step to prevent entry of radical Islamic terrorists from entering the country.
Trump soon reacted to the court order in his tweet.
"SEE YOU IN COURT, THE SECURITY OF OUR NATION IS AT STAKE!" Trump wrote indicating that he is deeply disappointed on the decision of the San Francisco-based Ninth Court of Appeal.
The Trump Administration has reached out to the court asking it to lift the halt on the implementation of its executive order that was ordered by a federal court in Seattle after an appeal filed by the Washington State.
The San Francisco Court had held an oral hearing on the case early this week. The bench included Judges William C Canby Jr, Richard R Clifton, and Michelle T Friedland.
"We hold that the government has not shown a likelihood of success on the merits of its appeal, nor has it shown that failure to enter a stay would cause irreparable injury, and we therefore deny its emergency motion for a stay," the judges said in an unanimous order.
"Rather than present evidence to explain the need for the Executive Order, the government has taken the position that we must not review its decision at all. We disagree," they wrote.
"In short, although courts owe considerable deference to the President's policy determinations with respect to immigration and national security, it is beyond question that the federal judiciary retains the authority to adjudicate constitutional challenges to executive action," the judges said.
In a brief interaction with reporters after the judgement, Trump described this as a political decision.
"It's a political decision, and we're going to see them in court. This is just a decision that came down, but we're going to win the case," Trump said according to NBC news.
However, his political opponents and rights activists celebrated the court verdict.
"The Constitution wins," said Indian-American Congresswoman Pramila Jayapal, who was one of the leading Democratic lawmakers against Trump's executive order.
"This is an enormous victory for democracy and for families in our country and around the world. The justices unanimously rejected the idea that they should narrow the temporary restraining order based on geography or scope. They signalled that this executive order will likely be overturned in higher court," Jayapal said.
She said the US retains its place as a refuge for so many around the world.
"Given the court's ruling, I urge the President to abandon this failed executive order, and to spare the American people the expense and pain of continued litigation. Instead of stoking hate and xenophobia, he should be a president for all Americans," she said.
Trump ought to see the writing on the wall that his executive order is unconstitutional, said Senator Chares Schumer, Senate Minority Leader.
"He should abandon this proposal, roll up his sleeves and come up with a real, bipartisan plan to keep us safe," he said.
"The 9th Circuit's unanimous ruling is a victory for our Constitution and our fight against terrorism. National security experts have urgently warned us that the President's ban is not just immoral and unconstitutional, but downright dangerous," said Nancy Pelosi, the Democratic leader.
House Democratic Whip Steny H Hoyer said America's judicial system delivered a strong rebuke to the Trump Administration's unconstitutional Muslim ban.
"With its unanimous 3-0 ruling, the Ninth Circuit Court of Appeals panel rejected the Administration's attempts to subvert the values and highest ideals of our nation. It also rejected a policy that threatens our national security and will hinder us in the war against ISIS and other purveyors of terror," he said.
"This is a victory not only for the hundreds of thousands of people affected by the ban but a victory for everything America stands for as well. Now, it is incumbent upon the President to respect the independent judgement of our courts and abide by this decision. I urge him to withdraw this ban altogether," Hoyer said.
The Council on American-Islamic Relations (CAIR) welcomed the court's decision to maintain the freeze on President Trump's controversial "Muslim ban" executive order.
"We applaud this ruling as a reaffirmation of the strength and independence of our system of justice. This decision adds to the long list of federal judges - both Republican and Democratic appointees - who found reason to block this discriminatory order," said Nihad Awad, CAIR national executive director.
"If the President were serious about bringing our country together and keeping us safe, he would rescind this arbitrary and discriminatory order and recall what makes our country great," said Senator Patrick Leahy, Ranking Member of the Senate Judiciary Committee.