However, it was noted the ruling does not mean activities planned by protest group, Rising Tide, will be lawful.
The group launched an 11th-hour legal challenge to the exclusion zone which formed part of efforts to prevent the planned blockade of the world's biggest coal port.
NSW Transport Minister Jo Haylen was named as the defendant in the court application. (Bianca De Marchi/AAP PHOTOS)
The exclusion orders were overturned following a hearing in the NSW Supreme Court hearing on Thursday afternoon, roughly an hour before they were due to come into effect between 5pm on Thursday and 8am on Monday.
The group had initially planned to block the major coal export channel for 30 hours, as part of a multi-day "protestival" that will also feature live music acts.
Transport for NSW issued the exclusion order on Friday night, imposing a maximum $1100 fine for breaching the zone and $3300 fine for anyone in the vicinity who fails to comply with directions.
Rising Tide's lawyer Felicity Graham told Thursday's hearing the purpose of the laws under which the exclusion zone was imposed was to protect public safety during "special events" on waterways, such as yacht races or fireworks barges, not ban them.
Justice Sarah McNaughton agreed with the group's submissions and ordered the exclusion zone be scrapped, however she noted that would not mean all of the activities planned by organisers would be lawful.
"The plain wording of the section is not such that it can prohibit the special event that it purports to be regulating," Justice McNaughton said.
The same court ruled on November 7 to deem the planned floating blockade an unauthorised assembly, leaving protesters liable for arrest if they obstructed access to the port.
The protesters' application named Transport Minister Jo Haylen as defendant and the 21-year-old Rising Tide organiser Alexa Stuart as the plaintiff.
Responding to questions from the ministers' barrister David Hume, Ms Stuart agreed Rising Tide promotes civil disobedience and said it is possible some of those at the event may break the law with the intention of drawing more publicity to the cause.
A court ruling on November 7 deemed a planned floating blockade an unauthorised assembly. (HANDOUT/GREENPEACE)
"I would say it is likely," she said.
Mr Hume asked Justice McNaughton to assume when making her judgment that protesters would be entering the water regardless of whether the exclusion zone existed or note.
"Nothing Your Honour does is going to affect whether or not people go into this exclusion zone starting tomorrow morning," he said.
Ms Haylen said the exclusion zone had been implemented at the request of police to ensure the safety of users on the waterway and safe passage of vessels.
NSW Police Assistant Commissioner Dave Waddell said public safety is the primary concern, with potentially thousands of people expected to attend the event on land across the weekend.
"Our message is very clear that people are not to enter the water," he said on Wednesday.
"We will be out in force to ensure public safety in and around the Newcastle foreshore (and) harbour."
Part of the concern stemmed from a similar protest held last year, when several protesters refused to exit the water after an agreed time, prompting nine arrests, Mr Waddell said.
"We respect people's right to free speech and demonstration, but where people commit criminal acts and interfere with the safety and general movement of the community, we are going to take action," he said.
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