The five-judge bench announced the decision in the capital Islamabad amid tight security, court official Shahid Hussain said.
Sharif, 68, three-time former prime minister of Pakistan, was disqualified and removed from office last year on the basis of corruption allegations against his family.
The investigation into alleged misconduct was prompted by revelations from the leaked Panama Papers, which included information about world leaders improperly hiding income.
The disqualification was viewed with scepticism last year, with some alleging collusion between generals and judges to remove Sharif, who is still considered the most popular political leader in the country.
Sharif was disqualified under a controversial Islamic law which says a leader should be a righteous and pious person. It was introduced to the constitution by former military ruler Ziaul Haq in the 1980s.
Friday's decision is a major blow to Sharif's Pakistan Muslim League party in the run-up to parliamentary elections scheduled for August.