The High Court ruled in favour of Papua New Guinea-born man, who argued the conditions placed on him after his release from prison were unconstitutional.
In response, 43 foreigners will have their ankle monitors removed and curfews revoked and will instead be placed on conditions similar to being on bail, requiring them to check in regularly at a set location.
The government says it will now focus on deporting the group to Nauru, rather than redrafting immigration laws for a third time.
The 36-year-old who brought the case is known only by the pseudonym EGH19. He was convicted of murder as a child and domestic violence against his wife and her father as an adult.
While prosecuted for the domestic violence, his protection visa was cancelled. He served his prison sentence and the government tried to deport him once he was released.
The man was required to wear a monitoring device at all times and stay at a designated address between 10pm and 6am each day.
The government maintained the measures were necessary to protect the Australian community.
But the High Court, by majority, found the conditions were invalid, in yet another blow to the government's attempts to monitor people released from indefinite immigration detention.
The monitoring regime was introduced after a landmark 2023 ruling by the same court that indefinite detention was illegal if there was no reasonable prospect of the person's removal from Australia in the foreseeable future.
The decision led to the release of 150 immigration detainees with criminal records, some of whom had convictions for serious offences such as murder and rape.
A number were arrested for allegedly reoffending after their release, sparking fierce public and political backlash.
The government reacted by introducing laws requiring some of the former detainees to wear ankle monitors and abide by a curfew, but those measures were struck down in 2024.Â
Labor was unlikely to redraft laws in response to the High Court's decision but would instead focus on its plan to deport members of the cohort to Nauru under a secretive deal with the tiny Pacific nation, a senior government source said.
Twenty seven people have had Nauruan visas approved and a further six have travelled to the island country.
The electronic monitoring was never the government's main focus, Home Affairs Minister Tony Burke said.
"While obviously the government would have preferred a different outcome, the government's ambition was never about ankle bracelets. If someone has their visa cancelled they should leave," he said in a statement.
Opposition Home Affairs spokesman Jonno Duniam called for new laws to respond to the High Court ruling to protect the community from the cohort.
"(These people) are some of the most dangerous that could possibly be in our community: convicted sex criminals, convicted murderers ... we know what happens when these people are left unchecked," he told reporters in Hobart.
Refugee advocates welcomed the court ruling, accusing the government of drafting laws on the run with no regard to fairness or the constitution.
"We work with people every day who are affected by these conditions - their lives have been turned upside down by these politicised punishments imposed on them simply because of where they were born," Asylum Seeker Research Centre deputy chief executive Jana Favero said.
The cost of the High Court challenge will be paid by the federal government.
