Hamas, the Islamist group which dominates the Gaza strip, has been at odds with the Egyptian government since the country's former President, Mohammed Morsy, was ousted in a coup in the summer of 2013.
Morsy was a member of the Muslim Brotherhood, an Islamist political organization that shares deep ties with Hamas. The government formed after Morsy's ouster designated the Brotherhood as a terrorist group in December 2013; since then, many of its leaders have been charged with supporting terrorism.
Hamas quickly denounced the decision at a news conference.
"It is a shocking and dangerous decision that targets the Palestinian people," Fawzi Barhoum, a Hamas spokesman, said at a news conference. "It will directly contaminate the reputation of Egypt."
CNN has attempted to reach Mousa Abu Marzouk, the Hamas representative in Egypt, for comment.
For years Egypt has played a major role in peace negotiations between Israel and various Palestinian factions, with Egypt being seen as fairly impartial by both sides. It's possible the new ruling will affect Egypt's position as a mediator between the two sides.
The United States and European Union have both designated Hamas as a terrorist organization.
Egypt's Urgent Matters Court based its ruling on Hamas in part on claims the organization had supported insurgents who have staged attacks in the Sinai Peninsula, a region that has been fraught with instability in recent months.
The armed wing of Hamas, the al Qassam Brigades, was designated a terror group by the same court last month.
This ruling comes a week after Egypt passed the Terrorist Entities Law, which spells out how to declare a group a terrorist organization, according to Ahmed Ragheb, head of the National Group for Human Rights and Law.
That new law states that the prosecutor general has to propose declaring a terrorist organization; that decision has to approved by the appeals court, Ragheb said. That means the court that made the decision did not have authority to do so.
Typically, foreign policy decisions in Egypt are left to the executive branch of government.
Under the law, authorities can also issue travel bans and freeze the assets of terror designees.