Judge Aubrey Ledwaba said the decision by the chief state prosecutor at the time, Mokotedi Mpshe, was "irrational".
The case, brought by the opposition Democratic Alliance, opens the way for prosecutors to reinstate the charges.
Mr Zuma always denied the allegations which are linked to a government arms deal in 1999 worth billions of dollars.
"Today is a great victory for the rule of law and ultimately we believe that Jacob Zuma must face prosecution and this judgement certainly affirms the view that we`ve always held," Democratic Alliance leader Mmusi Maimane said after the ruling.
"I congratulate my colleagues who`ve worked exceptionally hard on this case; it`s been a long battle."
It was dubbed the "spy tapes" case after the National Prosecuting Authority (NPA) dropped the charges in 2009.
The authority said new phone-tap evidence suggested political interference in the investigation.
South Africa`s governing African National Congress (ANC) said the High Court`s ruling did not infer any culpability in any crime or offence by the president.
"The ANC has consistently supported the legal maxim that justice delayed is justice denied. This matter has dragged on for close to a decade and the ANC is pleased therefore that it now appears closer to resolution, seven years since the NPA decision," it said in a statement.
Judge Ledwaba said Mr Mpshe had "found himself under pressure" when he decided to discontinue the prosecution and "consequently made an irrational decision".
"Considering the situation in which he found himself, Mr Mpshe ignored the importance of the oath of office which commanded him to act independently and without fear and favour.
"It is thus our view that the envisaged prosecution against Mr Zuma was not tainted by the allegations against Mr McCarthy.
"Mr Zuma should face the charges as outlined in the indictment."
This is the latest legal setback for the South African president.
Last month, South Africa`s highest court found that he had breached the constitution by failing to repay public money used to upgrade his private home.
It backed an earlier ruling by an anti-corruption body that said $23m (£15m) of public money had been improperly spent on Mr Zuma`s rural home in Nkandla in KwaZulu-Natal province.
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