Victoria Police's decision to declare the entire Melbourne CBD a "designated area" — granting officers expanded warrantless stop-and-search powers — was unlawful, the Federal Court has ruled.

The declaration, made in November and intended to run until late May, gave police expanded stop-and-search and move-on powers across central Melbourne. Despite being set for six months, it was abruptly ended on January 9 without explanation.

In response, the Federal Court heard a challenge to the designation brought by Gunditjmara, Yorta Yorta, Bindal and Meriam community organiser Tarneen Onus Browne and activist Benny Zable.

In her brief reasons delivered on Friday, Justice Elizabeth Bennett found the decision to enact the designation was affected by "jurisdictional error and therefore invalid".

Justice Bennett said the designation was unlawful as it was "incompatible" with human rights within the meaning of section 38.1 of Victoria's Human Rights Charter.

She also ruled the designation was unlawful because Victoria Police had "failed to give proper consideration" to section 13 of the Charter of Human Rights, which protects a person's right to privacy.

Justice Bennett's full written reasons are expected to be published later on Friday.

Onus Browne — who regularly helps coordinate the annual Naarm protest on January 26 — welcomed the findings, albeit noted they "didn't get everything we wanted".

"This is a win for First Peoples and allies coming to the Invasion Day rally, and every person who come into the CBD and designated areas, who want to be treated with dignity and respect and not subject to intrusive police powers," Onus Browne said.

"For me, human rights are the tools we use to fight for the basic rights and freedoms that belong to every person in the world, from birth until death. They're how we insist that every person — no matter your background, whether you've been here for five years, five generations or 5,000 generations, we all deserve safety and respect."

They added: "This case puts Victoria Police on notice: You cannot trample on the rights of First Nations people so easily. I look forward to marching on Invasion Day and call on community and allies to show up, exercise their right to protest and gather for First Nations justice."

When the declaration was announced, Victoria Police said it would provide an "invaluable tool in assisting police with removing weapons from the streets, as knife crime in Victoria has risen".

The move drew strong criticism from legal and Indigenous organisations, with many raising concerns about alleged racial profiling by Victoria Police — claims the force has strongly denied.

In a statement on Friday afternoon, Victoria Police said they respect the court's decision and will take time to consider the findings.

"Our intent has always been to protect the community and remove dangerous weapons from our streets," a Victoria Police spokesperson said.

They confirmed no declaration has been planned for the Melbourne CBD on January 26, which sees some of the largest Invasion Day rallies in the country.

"Victoria Police has been constructively engaging with protest organisers and at this stage has no intelligence to suggest a heightened risk of violence," the spokesperson said.

Sarah Schwartz, legal director of the Human Rights Law Centre, who has been acting on behalf of Onus Browne and Zable, said, "This case is a significant win for our clients and all people who might be targeted in designated areas."

"It case lays bare significant and systemic failures in Victoria Police's decision-making process, one which has led to extraordinary powers being exercised without proper basis and without consideration of human rights," she said.

"For too long Victoria Police have had unchecked powers to infringe people's fundamental human rights in designated areas, with significant impact on people who are exercising their rights to protest and move freely in our streets, without unwarranted police harassment. This case means they can no longer do so."

Under the legislation, it is an offence to prevent or resist police conducting a "pat down" search, electromagnetic wanding, or the removal of items of outer clothing, including headwear, scarves or jackets.

Police may also require a person to remove a face covering if they reasonably believe it is worn primarily to conceal identity or "protect from the effects of crowd-controlling substances", and may direct people to leave a designated area.

Ms Schwartz said Victoria Police have made 19 other declarations of designated areas — seven using the same power challenged in the case — since the original declaration was made in November.

"The question must now be asked whether these declarations are also unlawful and whether the thousands of searches and police powers exercised are unlawful," she said. "This should send a warning to the Victorian Government to seriously reconsider this scheme and the granting of these sorts of extraordinary powers to Victoria Police."