Judge Martin Chamberlain said after a hearing on Thursday that an injunction imposed earlier should be removed "and there should be no further interim relief".
The UK has agreed to hand Mauritius the Indian Ocean archipelago, which is home to a strategically important naval and bomber base on the largest of the islands, Diego Garcia.
The UK would then lease back the base for at least 99 years.
US President Donald Trump's administration, which was consulted, gave its approval, but finalising the deal was delayed by last-minute negotiations over costs.
The agreement was due to be signed by British Prime Minister Keir Starmer and Mauritian leader Navin Ramgoolam at a virtual ceremony on Thursday morning.
But a High Court judge granted an injunction in the early hours of Thursday, putting a hold on the agreement. It came in response to a claim by two Chagossian women representing the islands' original residents, who were evicted decades ago to make way for the American base.
Bernadette Dugasse and Bertrice Pompe, both British citizens, fear it will become even harder to return once Mauritius takes control of the islands.
High Court judge Julian Goose temporarily blocked the British government from taking any "conclusive or legally binding step to conclude its negotiations concerning the possible transfer of the British Indian Ocean Territory, also known as the Chagos Archipelago, to a foreign government".
One of the last remnants of the British Empire, the Chagos Islands have been under British control since 1814.
Britain split the islands from Mauritius in 1965, three years before Mauritius gained independence.
Britain evicted as many as 2,000 people from the islands in the 1960s and 1970s so the US military could build the Diego Garcia base, which has supported US military operations from Vietnam to Iraq and Afghanistan.
Displaced Chagossians fought unsuccessfully in UK courts for years for the right to go home.
Under the deal, a resettlement fund would be created to help displaced islanders move back to the islands, apart from Diego Garcia.
Mauritius has long contested Britain's claim to the archipelago and in recent years the United Nations and its top court have urged Britain to return the Chagos to Mauritius, 2100km southwest of the islands.
Britain agreed to do so in a draft deal in October, but that was delayed by a change of government in Mauritius and reported quarrels over how much the UK should pay to lease the base.
The UK's opposition Conservatives have criticised the deal, accusing the government of surrendering sovereignty over a British territory.
The British government decliend to comment on the ongoing legal case, but said "this deal is the right thing to protect the British people and our national security".
