Britain on Thursday temporarily suspended approving new Saudi arms export licenses that might contribute towards the conflict in Yemen.
International Trade Secretary Liam Fox announced the decision after a British court ordered the government to "reconsider" the sales due to their toll on the civilian population.
The conflict in Yemen has claimed tens of thousands of lives and triggered what the United Nations describes as the world's worst existing humanitarian crisis.
"We disagree with the judgement and will seek permission to appeal," Fox said in a statement delivered in parliament.
"While we do this, we will not grant any new licenses to Saudi Arabia and its coalition partners which might be used in the conflict in Yemen."
Shares in Britain's BAE Systems defence and aerospace giant lost nearly four percent of their value before recovering slightly at the end of the trading day.
Riyadh Downplays Ruling
England's Court of Appeal had earlier on Thursday said the government broke the law by failing to assess properly whether the arms it sells to Riyadh violated its commitments to human rights.
The court ruled that the UK government "must reconsider the matter" and weigh up future risks.
"The government made no concluded assessments of whether the Saudi-led coalition had committed violations of international humanitarian law in the past, during the Yemen conflict, and made no attempt to do so," the ruling said.
It called this failure an "error of law" that needed to be addressed.
Britain has defended its military cooperation with its historic Middle East ally and the Saudi government played down the judgement's impact.
"The court ruling, it had to do more with process than with actual substance," Saudi Foreign Minister Adel al-Jubeir told reporters in London.
"There was no guilt found," Jubeir said.
"This is an internal matter for the UK, not for Saudi Arabia. The existing licences will continue."
Thursday's decision was part of a long-running court battle that the UK-based Campaign Against Arms Trade non-profit group first launched against the British government in December 2015.
The High Court had found in July 2017 that the British arms exports were "lawful".
The Court of Appeal reversed that decision on Thursday.
Britain accounts for 23 percent of arms imports to Saudi Arabia and last year signed a multi-billion-pound preliminary order with Riyadh for 48 Eurofighter Typhoon fighter jets.
Government figures analysed by CAAT show that Britain has licensed nearly £5 billion ($6.4 billion, 5.6 billion euros) in weapons to the kingdom since its Yemen campaign began in 2015.
The Times newspaper estimates the annual value of BAE Systems' service and supply contracts with Saudi Arabia at £2.5 billion.
The Court of Appeal stressed that Thursday's decision "does not mean that licences to export arms to Saudi Arabia must immediately be suspended".
Fox made no references to existing arms sales contracts and did not imply that all exports to Britain's traditional Middle East ally would halt.
But CAAT said its "historic" victory should force the government to suspend all military equipment sales.
"The government must now stop issuing new arms exports licences, suspend existing licences, and retake all decisions to export arms to Saudi in accordance with the law," CAAT said in a statement posted on its website.
* This story was edited by Ahram Online.