Judges in Nice said the July 14 terror attack on the French Riviera city gave insufficient grounds to justify such a ban.
The decision Thursday follows last week's ruling by France's highest administrative court to suspend the bans introduced by around 30 towns, mainly in the sun-drenched southeast.
Nice and several other towns had ignored the ruling and kept their bans in place in the midst of a raging debate over religious clothing in secular France.
Nice was one of the first French towns to ban the Islamic swimsuit this summer, with city authorities claiming there was a risk to public order from wearing the garment after a jihadist in a truck ploughed into crowds on the city's waterfront, killing 86 people.
But the city's administrative court ruled Thursday: "In the absence of such risks, the emotions and the concerns resulting from terrorist attacks, and especially from the attack on July 14, are insufficient grounds to legally justify the contested ban."
The court also found that burkinis posed no risk to "hygiene, decency or safety when swimming".
The emotive issue of the burkini was further inflamed last week when photographs taken on a beach in Nice showed police surrounding a woman in a headscarf and a long-sleeved top.
Nice authorities denied the woman had been forced to remove clothing. They told AFP she was showing police the swimsuit she was wearing under her top, over a pair of leggings, when the picture was taken.
At least 30 fines have been issued in Nice since the burkini ban was introduced.
France's Human Rights League and an anti-Islamophobia group challenged the ban.
The chief lawyer for the city authorities had argued on Wednesday that the burkinis did pose a risk of public disorder.
She said the city was "almost on the brink of civil war".
