The high administrative court has given permission for former army chief of staff Sami Anan to form a political party.
In the same judgment, it rejected an application by Tamarod, which led the campaign to oust president Mohamed Morsi.
The decision was made by the court after both applications were initially rejected by the political party affairs committee.
The court ruling cannot be appealed.
The Masr Al-Orouba Party is headed by Anan’s son, Samir.
Sami Anan served as army chief of staff from 2005 till 2012.
He was retired in August 2012 by then-president Mohamed Morsi along with the head of the military council Field MArshal Mohamed Hussein Tantawy.
Tamarod, which played a crucial role in calling for protests to ouster Islamist president Mohamed Morsi in July 2013, expressed its astonishment at the court ruling.
"We do not understand the reasons behind the rejection – they are unclear and illogical. We respect the court’s ruling but we demand an explanation of why it rejected our application," Tamarod spokesman Eman El-Mahdy told Al-Ahram Arabic news website.
"Why did the committee accept parties founded on a religious basis like Nour and Asala but reject youth parties like ours?" El-Mahdy said.
According to the 2014 constitution, parties based on religious, racial or military platforms are banned.
Despite the court ruling, the youth movement will participate in the upcoming parliamentary election, to be held March, as independent candidates under the name of Tamarod, according to El-Mahdy.
"We do not need a party, we are well known in Egypt and the Arab world," she said.
The political party affairs committee rejected both proposed parties in December over legal technicalities and inconsistencies in the application process.
As an independent judicial authority, the committee has the right to approve or reject the formation of parties according to the constitution and political party laws.