The home secretary was branded "irrational" by the high court today, in a humiliating ruling which cast doubt on her abilities as a secretary of state.
Mr Justice Popplewell found that Theresa May's decision to freeze asylum seeker support at just £5.23 a day was "flawed" and that she had "failed to take reasonable steps to gather sufficient information to enable her to make a rational judgment".
He added she had acted irrationally in failing to take into account the extent of the decrease in asylum support rates in real terms since 2007 and the freezing of rates in absolute terms since 2011.
Reports from asylum support groups revealed that many refugees were facing extreme destitution, receiving a tiny sum per day and unable to get work or claim welfare.
Many asylum seekers have been forced to go hungry in order to feed their children or walk miles because they were unable to afford a bus.
Dave Garratt, chief executive of Refugee Action, which brought the case, said: "Every day we see the human impact of this unlawful Home Office policy which robs individuals and families of their dignity.
"The decision to take this judicial review was not taken lightly and followed extensive research and advocacy by Refugee Action and our partners across the sector. After five years of our evidence being ignored, we felt legal action was our only option.
"While we are hugely heartened by today’s judgment, we urgently need to see the Home Office acting on this ground-breaking ruling by setting up a transparent and robust enquiry into the way asylum support rates are calculated."
Today's ruling could affect up to 23,000 people.
Research suggests up to half of the asylum seekers surveyed by support groups said they could not afford to feed themselves or their families.
The research also found that 43% of asylum seekers missed a meal because they could not afford to eat, while 88% did not have enough money to buy clothes.
"In a careful and balanced judgment, the court has found that the home secretary has acted irrationally and therefore unlawfully in taking a decision to freeze asylum support rates for those seeking asylum for the third, and now fourth, year running," Sonal Ghelani, solicitor at the Migrants' Law Project, said.
"It is to be hoped that the home secretary will act urgently to review her decision and engage constructively with Refugee Action and its partners to reach a decision which is fair and respects the right to dignity of one of the most vulnerable groups in our society."
Deborah Jack, chief executive of NAT said: "We congratulate Refugee Action on this important victory for human rights and common sense.
"At NAT we see numerous cases of people with HIV, here lawfully as they apply for asylum, being unable to pay for adequate food, clothing and heating because the support they receive is too low. This can have a devastating impact on their health."