DACA, which shields undocumented immigrants who were brought into the United States as children from deportation, has been a frequent target of criticism by President Donald Trump.
The ruling by a panel of the 9th U.S. Circuit Court of Appeals, based in San Francisco, represents a blow to the administration, which had appealed against an injunction blocking Trump from ending DACA.
She said the court is not trying to infringe on the president's power regarding immigration law and instead wants to enable the exercise of that authority "in a manner that is free from legal misconceptions and is democratically accountable to the public". His administration announced plans in September 2017 to phase out DACA, arguing that Obama had exceeded his constitutional powers when he bypassed Congress and created the program.
DACA has protected 700,000 people who were brought to the US illegally as children or came with families that overstayed visas.
In January, U.S. District Judge William Alsup granted a request to keep DACA operational while its future was being litigated.
DACA recipients will now have to wait to see if the Supreme Court will take up a challenge to the Ninth Circuit's ruling. He instead wants lawmakers to approve a permanent fix to the dreamer issue in a bill that also includes funding for the proposed wall on the USA border with Mexico, along with terminating chain migration and the draft lottery program.
The Trump administration has said it moved past year to end DACA because Texas and other states threatened to sue, raising the prospect of a chaotic end to the program.
The states had been successful in stopping an extension of a different program proposed by Obama, called the Deferred Action for Parents of Americans and Lawful Permanent Residents program (DAPA).
The ruling was the first by a federal appellate court to review the merits of the decision to rescind DACA.
The 9th Circuit disagreed with the New Orleans-based 5th U.S. Circuit Court of Appeals and said one of its conclusions did not apply to DACA. Trump's action sparked an outcry from immigration advocates, business groups, colleges and some religious leaders.
On November 8, a three-judge panel of the Ninth Circuit upheld a trial court's injunction preventing the Trump administration from carrying out its elimination of DACA.
A federal appeals court has halted the president's attempts to end DACA while lawsuits over the matter play out in court.
Legislation to extend protections for DACA recipients and provide them a path to citizenship failed in Congress this year. It sent a letter to the circuit last month, saying that if the decision was not handed down by October 31, it would ask the Supreme Court to take up the issue.