Seven months from Victorians heading to the polls, the High Court quashed the state's Australian-first political donation cap and election expenditure rules in a 71-page judgment on Wednesday.
The court unanimously found the laws "impermissably burdens" the Australian constitution's implied freedom of political communication.
Victorian Labor introduced donation caps in 2018, limiting individual payments to candidates and parties to under $5000 each term.
But Labor, Liberal, and National parties were still allowed to withdraw unlimited sums from their respective fundraising bodies, known as nominated entities.
Other parties and independents could not set up their own nominated entities, with West Party candidate Paul Hopper and former independent candidate Melissa Lowe challenging the laws' constitutional validity.
The seven-justice bench, including Chief Justice Stephen Gageler, decided nominated entities were "so intertwined" within part 12 of Victoria's Electoral Act that the whole section must be invalidated.
"The way it passed through parliament meant it was a package deal and therefore the remaining campaign finance laws were also declared invalid," the plaintiffs' lawyer Kiera Peacock said.
Mr Hopper and Ms Lowe wrote to the Victorian government in 2024 asking for the "rigged" nominated entity exception to be removed and offer suggested fixes.
"They chose to ignore our suggestions," Mr Hopper told reporters.
Ms Lowe said the Labor government "clung" to laws for two years to protect their incumbency and called for uniform laws to create a "level playing field".
Premier Jacinta Allan said the ruling risked opening the state to the influence of dark money in politics.
"The government will immediately move to restore Victoria's electoral integrity regime within the limits of the High Court's ruling," in a statement on Wednesday evening.
"We can't allow anyone to exploit this current period to solicit huge donations and move money around secretly."
The Victorian government was ordered to pay legal costs.
Shadow Attorney-General James Newbury said the coalition was willing to work with the government on urgent laws to fill the gap, ahead of the Nepean by-election on May 2.
"We cannot, for even one day, have a system whereby we have no donation limits, no caps, no transparency, no reporting, no limits on foreign donations," he said.
In December, Premier Jacinta Allan announced a bill to allow smaller parties and independents to set up their own nominated entities.
Transfers from the funds would also have been capped at $500,000 for all parties and $50,000 for independent candidates over each election cycle.
However, the reforms were quietly dumped before the legislation passed both houses of state parliament in March.
South Australia, NSW and Queensland have followed Victoria in implementing caps on political donations.
Under federal system reforms, the amount an individual can donate to a party's branch will be capped at $50,000 in a calendar year and election spending limited to $90 million for political parties nationwide.
The federal political donation law changes are not slated to take effect until the start of 2027.
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