The candidates were banned because they are affiliated with Saddam Hussein's Baath party which ruled the country before the invasion in 2003.
The Iraqi government has condemned the court's decision and is due to hold an emergency debate on Sunday.
Campaigning is due to start on the same day for the 7 March poll.
A government spokesman said the court decision was "illegal and unconstitutional".
The election is regarded as a crucial test for Iraq's national reconciliation process ahead of a planned US military withdrawal.
On Wednesday, the appeals panel ruling overturned a ban on hundreds of politicians from running for public office.
Post-polls investigations
Baathism is a form of secular Arab nationalism and was the ideology espoused by Saddam Hussein when he came to power.
The BBC's Gabriel Gatehouse in Baghdad says although the list of names straddles the sectarian divide, it is Sunni groups who have felt most targeted by the exclusions, and whose voices of protest have been heard loudest.
Although a minority, Sunni Muslims were dominant under Saddam Hussein's rule but have since complained of being marginalised under the post-Saddam Shia-led government.
The ruling would allow the candidates to stand for election, and be subject to investigation only after the polls.
US officials had voiced concerns about the ban, fearing that it could inflame sectarian tensions and undermine confidence in the electoral process.
There are still more than a 100,000 American troops in Iraq and the Pentagon's exit strategy depends in large part on a peaceful and credible election, our correspondent says
