The lawmaker, Hanin Zoabi, enraged many Israelis in 2010 by joining the Turkish-led Mavi Marmara flotilla, which was stormed by Israeli naval commandos who clashed with pro-Palestinian activists, killing nine. The Israeli military says the soldiers acted in self-defense after being attacked on the deck.
Zoabi was nearly assaulted in parliament by another lawmaker and subsequently was stripped of some of her parliamentary privileges.
Earlier this month, an Israeli elections committee voted to disqualify her from running in next month's election. She appealed that decision to the Supreme Court, which overturned it, as it has rejected the committee's attempts in previous years to bar other Arab candidates from running.
"I welcome the ruling," Zoabi said. "I hope this ruling will put an end to the political witchhunt."
Lawmaker Danny Danon, who collected thousands of signatures demanding that Zoabi's candidacy be disqualified, accused the court of "backing the Marmara terrorist rather than naval commando fighters."
The court said in its ruling that it would release its reason for overturning the decision at a later date. Under Israel's election law, the court had to issue its ruling by Sunday.