Justice secretary Jack Straw has promised to "robustly" challenge the ruling not to deport the killer of head teacher Phillip Lawrence.
He has attempted to dispel the claim that the Human Rights Act prohibits the government from deporting Learco Chindamo, saying the fault lies with EU law.
Mr Straw told BBC Radio 4's Today programme: "It is very probable that most of this issue arises not from the Human Rights Act but from European Union law.
"We are very vigorously appealing this. This was not our expectation that this man would be open to live in this country upon his release."
Documents now released by the Asylum and Immigration Tribunal said Chindamo's right to remain in the UK was "compelling" under the terms of a 2004 EU directive.
The law applies to any EU citizen residing in another EU country for at least ten years.
Chindamo, an Italian citizen who left Italy at the age of six, had been living in the UK for nine years before he was jailed for the 1995 murder. The tribunal ruled the directive makes no distinction between time spent in and out of prison.
The tribunal also rejected the Home Office's claim Chindamo posed a "genuine and present high level of risk".
The department rated Chindamo as posing the highest level of risk. The Home Office argued his notoriety risked provoking a backlash upon his release and there was a danger Chindamo would retaliate. It claimed he had a history of over-reacting to situations.
The Home Office also raised concerns it would struggle to house Chindamo after his release and said he may need to be banned from areas of the country. However, it accepted he was not likely to re-offend.
In its written judgement, the tribunal did not find evidence of "imperative grounds of public security justifying his removal".
It concluded: "Chindamo had not been shown to pose a present and serious threat, and as he is a citizen of an EU country he cannot be expelled."
Yesterday it was reported the judges had been swayed by the Human Rights Act, which guarantees people a right to a family and private life.
The judgement said: "We accept that family life exists. The relationship between the appellant and his mother and brothers transcends normal emotional ties. The appellant has a very supportive family, who will have an important role on his release, to protect him as far as possible from notoriety.
"We consider that there have been shown to be insurmountable obstacles to the family living together in Italy . . . We conclude that the secretary of state has not shown that the breach of Article 8, right to family life, that would be occasioned by the appellant's removal to Italy, would be proportionate."
The Conservatives used the claim to reiterate their opposition to the Act and put forward the case for a British Bill of Rights.
Last night, Chindamo's lawyer questioned the government's decision to appeal.
Nigel Leskin told the Guardian: "I do not see they have any grounds for appeal because it can only be on a point of law and there is no legal issue here I can see because it is a matter of facts."
Nevertheless, David Cameron said the ruling was "complete madness".
He said: "The fact that the murderer of Philip Lawrence cannot be deported flies in the face of common sense. It is a glaring example of what is going wrong in our country. What about the rights of Mrs. Lawrence?"
Shadow home secretary David Davis added: "The government are trying to blame the courts but they signed up to the EU law in question and continue to cede the powers to deal with dangerous individuals like this to Brussels."
Chindamo, now 26, was jailed for a minimum 12-year sentence, which concludes in April 2008. Mr Straw confirmed yesterday the government had been expecting to deport him at the end of his sentence.
Mr Lawrence was murdered outside his school in Maida Vale, north London, in 1995. His widow Frances Lawrence said yesterday she was "devastated and demoralised" by the ruling.