The constitutional chamber of the Honduras Supreme Court ruled on Wednesday that privately run cities would be unconstitutional, threatening a project to build "model cities" with their own police, laws, government and tax systems.
The five-judge panel voted 4-to-1 in a ruling that goes against the Honduran government and the country's elite.
Because the decision was not unanimous, the case now goes to the full 15-member Supreme Court, which is expected to take it up within 10 days.
The judges argued that "the foreign investment expected to be received by the state of Honduras implies transferring national territory, which is expressly prohibited in the constitution."
South Korean speculators MGK and the Honduran government signed a memorandum of understanding last month on the construction of three "private" cities.
MGK was expected to invest $15 million (£9.2m) to begin building infrastructure for the first city near Puerto Castilla on the Caribbean coast.
Another city was planned for the Sula Valley in northern Honduras and a third in southern Honduras.
The project is opposed by civic groups and the indigenous Garifuna people, who say they don't want their land to be used for the project.
Living along Central America's Caribbean coast, the Garifuna are descendants of the Amazon's Arawak Indians, the Caribbean's Caribes and escaped West African slaves.
Authorisation for the creation of private cities was passed by the Honduran Congress in January 2011 amid much controversy.
The county's supreme court received a complaint against the proposed cities last November filed by former constitutional prosecutor Oscar Cruz, who called the project "a catastrophe for Honduras."