The state had planned to sell 11 buildings, including the Supreme Court in San Francisco, to help close California's lingering budget shortfalls.
The deal would have netted the state $1.2 billion after it paid $1.1 billion in debt. But earlier this year two former members of the Los Angeles State Building Authoritysued the state to block the sale of the buildings.
A judge said in November she would consider the suit. But last week it was pushed through as legal.
The deal was supposed to close Wednesday but the decision by the Sixth District Court of Appeal will put any sale on hold until all legal matters are hemmed out.