It has ruled that the party is a successor to a group outlawed as the political wing of armed separatists ETA.
The court said in its ruling that ETA and its banned political branch Batasuna were organising political, social and financial support for the Herritarren Zerrenda party.
Herritarren Zerrenda, whose name in Basque means 'the list of the people', said it would appeal the decision in the Constitutional Tribunal, Spain's highest court.
Spain is scheduled to hold European Parliament elections on 13 June.
Spain's Socialist government, which took office last month, said the party was the heir to Batasuna, the Basque separatist group outlawed in 2003 for refusing to condemn ETA violence.
It was the first Spanish political party to be banned since the death of dictator Francisco Franco in 1975.
ETA, listed as a terrorist group by the European Union and the United States, has killed about 850 people since 1968 in a bloody campaign for an independent Basque state in northern Spain and southwest France.