The law would have allowed police to seek court orders stopping gang members from associating with each other.
But a member of the Hell's Angels challenged the law on the grounds that it curtailed individual liberties.
The law was introduced following a brawl at Sydney airport in 2009 in which a man was beaten to death.
The BBC's Nick Bryant in Sydney says similar anti-biker laws in other Australian states may now face legal challenges.
The legal challenge to the law was based on two arguments - that the anti-biker law curtailed individual liberties, and that it also undermined the integrity of the courts.
The gang member's lawyer Wayne Baffsky said the law had the potential to destroy democratic society.
"It targets organisations who are defined as any two or more people, which means any two or more people in NSW could be a target of the act," he was quoted as saying by ABC news.
"The legislation was rushed through. The parliamentary oversight committee didn't even have an opportunity to look at it."
The court ruled that the law was outside the legislative powers of the New South Wales parliament.
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