Opponenents and human rights groups say the ruling is a legal coup d'etat for Montt.
The former dictator appealed to the Court after an election tribunal refused to allow him run on the presidential ballot.
The four judges who ruled on Monday in his favour have been criticised for acting in a partisan fashion.
"We consider this to be legal manipulation, he's an illegal candidate, and this ruling is the result of a legal coup," Alvaro Colom, the presidential candidate for the centre-right National Unity of Hope party said on Wednesday.
The 77-year-old retired general was prevented from running in 1990 and 1995 because Guatemala's 1985 constitution bars former coup leaders from running for the presidency.
Rios Montt's lawyers argued the constitution cannot be applied retroactively.
Rios Montt, who is now the congressional president, was deposed in 1983 after coming to power in a coup the previous year.
Rios Montt has been accused of genocide by a UN-sponsored commission that concluded in a 1999 report that about 17,000 people were killed and 400 indigenous communities were destroyed by the army during his brief tenure.
The former dictator denies such allegations and claims to be a target of left-wing politicians.
Rios Montt will run for the presidency as the official candidate of the ruling right-wing Guatemalan Republican Front.
"I think Guatemala came out a winner with this resolution... since all (presidential) candidates are now up for election," Rios Montt said after the court decision was announced.
That decision was also criticised by the Bush Administration.
"Our position has not changed" despite the ruling, State Department spokesman Jo-Anne Prokopowicz said.
"We hope for a productive relationship with whoever is the next president of Guatemala," Prokopowicz said.
"But realistically, in light of Rios Montt's background, it would be difficult to have the ideal relationship we would prefer," she added.
The US record in Guatemala has not been perfect.
Former US President Bill Clinton in 1999 made a public apology while on a visit to that country over the role of the CIA in training death squads there.
Those squads resulted in the murder of about 200,000 Guatemalans.