The Trump administration is racing to halt a major blow to the president’s sweeping tariffs after a US court ruled they “exceed any authority granted to the president”.

A US trade court ruled the president’s tariffs regime was illegal on Wednesday in a dramatic twist that could block Trump’s controversial global trade policy.

On Thursday, an appeals court agreed to a temporary pause in the decision pending an appeal hearing. The Trump administration is expected to take the case to the supreme court if it loses.

The ruling by a three-judge panel at the New York-based court of international trade came after several lawsuits argued Trump had exceeded his authority, leaving US trade policy dependent on his whims and unleashing economic chaos around the world.

On Thursday, the Trump administration filed for “emergency relief” from the ruling “to avoid the irreparable national-security and economic harms at stake”.

The White House press secretary, Karoline Leavitt, said the judges had “brazenly abused their judicial power to usurp the authority of President Trump” in what she characterised as a pattern of judicial overreach.

“Ultimately the supreme court must put an end to this,” she said.

Leavitt’s comments came as a second judge, Washington DC district court judge Rudolph Contreras, called the tariffs “unlawful” and ordered a preliminary injunction on the collection of tariffs from a pair of Illinois toy importers, which brought the case.

Tariffs typically need to be approved by Congress but Trump has so far bypassed that requirement by claiming that the country’s trade deficits amount to a national emergency. This had left him able to apply sweeping tariffs to most countries last month, in a shock move that sent markets reeling.

The court’s ruling stated that Trump’s tariff orders “exceed any authority granted to the president … to regulate importation by means of tariffs”.

The judges were keen to state that they were not passing judgment on the “wisdom or likely effectiveness of the president’s use of tariffs as leverage”. Instead, their ruling centred on whether the trade levies had been legally applied in the first place. Their use was “impermissible not because it is unwise or ineffective, but because [federal law] does not allow it”, the decision explained.

Financial markets cheered the court’s ruling, with the US dollar rallying in its wake, soaring against the euro, yen and Swiss franc. In Europe, the German Dax rallied 0.9%, while France’s Cac 40 rose 1%. The UK’s FTSE 100 blue-chip index ticked up 0.1% at the start of trading. Stocks in Asia also climbed on Thursday, while in the US stock markets all rose marginally.

The ruling immediately invalidated all of the tariff orders that were issued through the International Emergency Economic Powers Act (IEEPA), a law meant to address “unusual and extraordinary” threats during a national emergency.

The judges said Trump must issue new orders reflecting the permanent injunction within 10 days.

White House officials have hit out at the court’s authority.

The ruling, if it stands, blows a giant hole through Trump’s strategy to use steep tariffs to wring concessions from trading partners, draw manufacturing jobs back to US shores and shrink a $1.2tn (£892bn) US goods trade deficit, which were among his key campaign promises.

Without the help of the IEEPA, the Trump administration would have to take a slower approach, launching lengthier trade investigations and abiding by other trade laws to back the tariff threats.

The decision is also likely to embolden other challenges to Trump’s policy. Last month, California’s governor, Gavin Newsom, filed a lawsuit against the tariffs, arguing they were “illegal, full stop”.

The court was not asked to address some industry-specific tariffs Trump has issued on cars, steel and aluminium, using a different statute, so these are likely to remain in place for now.

Analysts at Goldman Sachs said that there could be other legal avenues for Trump to impose across-the-board and country-specific tariffs, saying: “This ruling represents a setback for the administration’s tariff plans and increases uncertainty but might not change the final outcome for most major US trading partners.”

Other options for the president include sections under various trade acts that grant him powers to intervene on trade policy, albeit in an often slower and, in some instances, more limited way.