In its ruling, the court banned more than 100 members of the Cambodia National Rescue Party (CNRP) from politics for five years for conspiring with foreigners to stage a revolution, effectively paving the way for longtime Prime Minister Hun Sen's governing Cambodian People's Party (CPP) to run unopposed in next year's national elections.
The move drew swift condemnation from advocacy groups and the wider international community.
"Democracy died in Cambodia today and it's hard to see it reviving so long as Hun Sen, in power for 32 years, remains as prime minister," Brad Adams, the Asia director for Human Rights Watch, said in a news release. "This is a watershed moment."
Hun praised the decision in a televised address Thursday, noting that the country has many political parties -- though only the CPP and CNRP won seats in the most recent national election.
"This decision will ensure the peace, stability, independence and sovereignty," he said. "The government will commit to protecting the liberal multi-party democratic process and the rule of law."
The CNRP said it did not send any legal representative to the courtroom for the announcement in protest of what it believes is unfair CPP influence on the Supreme Court. Chief Judge Dith Munty, who is a member of the CPP, said their absence was tantamount to a confession.
In a statement issued after the ruling the CNRP accused the Supreme Court of "robbing the people" and said it wouldn't acknowledge what it called a "politically motivated" decision.
"Today the Supreme Court gave a blow to democracy but not a fatal one, as the democratic movement for change inside and outside Cambodia will be glued together stronger than ever," CNRP Deputy Vice President Mu Sochua said, according to the Phnom Penh Post.
CNN attempted to contact lawmakers from the party, but many have fled the country or are in hiding.
The US government said in a statement the decision to dissolve the CNRP was "based on meritless and politicized allegations that it participated in a conspiracy to overthrow the government."
Cambodia has functioned as a nominal democracy since 1993, following decades of turmoil and deadly power struggles in the wake of a protracted civil war. But in recent months Hun's rule has become increasingly autocratic, even by Cambodian standards, with Thursday's ruling marking the latest in a series of assaults on the country's opposition and wider civil society.
Cambodia has been the recipient of billions of dollars in international investment and aid as the country seeks to modernize its infrastructure and open its economy.
Human Rights Watch and other NGOs have called on Cambodia's benefactor states, which include China and the US, to take action in response to the Thursday ruling.
The White House said the United States would take "concrete steps" in response, the first of which would be terminating American support for the Cambodian National Election Committee.
"It is becoming increasingly evident to the world that the Cambodian government's restrictions on civil society, suppression of the press, and banning of more than 100 opposition leaders from political activities have significantly set back Cambodia's democratic development and placed its economic growth and international standing at risk," the statement said.
The Foreign Ministries of both Australia and the United Kingdom also spoke out against Thursday's ruling.
"This development has serious implications for democracy in Cambodia. It is the culmination of a series of troubling actions, including reduced access to free media, restrictions on civil society and intimidation of the opposition," Foreign Minister Julie Bishop said in a statement Friday. "With the dissolution of the CNRP, a significant number of votes cast in that election are no longer recognized."
Mark Field, the British minister for Asia and the Pacific, said his government was "dismayed" by the decision.
"This effectively renders Cambodia a one-party state in its parliament and delegitimizes next year's general election," he said in a statement.