It upheld a challenge brought by the far-right Freedom Party (FPOe) against its candidate Norbert Hofer's narrow defeat in May's presidential election.
"The challenge brought by Freedom Party leader Heinz-Christian Strache against the May 22nd election... has been upheld," said Gerhard Holzinger, head of Austria's Constitutional Court.
Norbert Hofer of the FPÖ came top in a first round in April but then lost by only 30,863 votes to Alexander Van der Bellen, an independent backed by the Green Party, in a runoff.
Preliminary results on the evening had given Hofer a narrow lead but after some 700,000 postal votes were counted, Van der Bellen was declared the winner of the largely ceremonial post the next day.
The FPOe, which is topping opinion polls ahead of the next scheduled general elections in 2018 on the back of unease about immigration, launched a legal challenge on June 8 because of "massive irregularities".
These included allegations that tens of thousands of votes were opened earlier than allowed under election rules and that some votes were counted by people not authorised to do so.
According to press reports, the re-run is likely to take place in September or October.
Brexit to play a role ?
The decision sets in motion what is likely to be a hard-fought and nail-biting new summer election battle between Van der Bellen and Hofer.
It remains to be seen whether the FPÖ's success in getting the election held again will translate into getting Hofer into the Habsburg dynasty's former imperial palace, the Hofburg.
It is possible that Britain's referendum decision on June 23 to become the first member of the European Union to leave the bloc could also turn Austria's future membership into a key election issue.
Hofer, echoing French National Front leader Marine Le Pen, said after the Brexit bombshell that he would be in favour of holding a referendum in Austria if EU fails to implement necessary reforms "within a year".
"If (the EU) evolves in the wrong direction, then in my opinion the time has come to ask the Austrians if they still want to be part of it," Hofer told the Oesterreich tabloid on June 26.
Chancellor Christian Kern of the centre-left Social Democrats (SPÖ), who in mid-May replaced Werner Faymann after he quit after his presidential candidate was knocked out in the first round, has ruled out such a vote.
"It makes no sense... This is a time to learn lessons and dispel people's doubts and fears," he said just after the Brexit result.
Van der Bellen, a calm but sharp-tongued slightly dishevelled economics professor known as "Sascha" for his Russian roots and who used to be leader of the Greens, is staunchly pro-EU.
As Austrian president, he has said he dreams of a border-free "United States of Europe" that defends the rights of minority groups.
Austrian presidential candidate Alexander Van der Bellen said Friday he is "very confident" of being elected again, after a court annulled his May 23 win following a legal challenge from the far-right.
"I am very confident that what my team and I will manage again what we did last time, winning widespread support from all different sections of society, different parties, religions and cultures," he said.
"In September we will do it again. Politics is not a game... Austria needs to be well represented in Europe and the world," he told a news conference.
"If we can do it once, we can do it again."
The re-run of the election is expected to be held in September, but officials have not yet announced a date.
Earlier Friday Austria's highest court annulled Van der Bellen's narrow May 23 victory of just 31,000 votes over Norbert Hofer of the far-right Freedom Party (FPÖ) because of widespread procedural irregularities.
Van der Bellen also said that it was "possible" that Britain's decision on June 23 to leave the European Union might play a role in the election campaign, but declined to comment further.
Van der Bellen is staunchly pro-EU but after the "Brexit" referendum Hofer said that if the bloc fails to reform sufficiently in the next year, Austrians should also hold a vote on continued membership.
Surveys have shown strong support for belonging to the EU.