President Horst Koehler signed the air safety bill last year, but he encouraged a review by the Federal Constitutional Court amid heated debate over whether the state has a right to kill citizens even to save the lives of others. A complaint was filed by a group of lawyers and a flight captain.
In its ruling, the court found the bill "incompatible with the fundamental right to life and with the guarantee of human dignity" for innocent passengers on an aircraft.
It also found that allowing the military to shoot down civilian airliners violates a constitutional ban on the military being deployed for domestic security, except in natural disasters or after a particularly serious accident has happened.
The law was proposed by the government of former Chancellor Gerhard Schroeder in the wake of the Sept. 11 attacks and after a German stole a small plane in January 2003 and threatened to crash it into Frankfurt's skyscrapers. The pilot landed at the city's airport about two hours later.
"We must now examine together the question of how we create the legal basis so that citizens are protected against terrorist attacks from the air," Defense Minister Franz Josef Jung said.
That, he said, would include considering possible constitutional changes.
At a November court hearing, then-Interior Minister Otto Schily defended the bill, saying the government was obliged to do everything it could to protect its citizens from terrorism.
However, he said a shoot-down order, which would have been made by the defense minister, was unlikely in practice. He argued that authorities did not have enough time to take action against the hijacked airliners that carried out the Sept. 11 attacks.
The parliamentary leader of the governing Social Democrats noted that the court's ruling effectively meant airliners could be shot down only if they were unmanned or had no one other than terrorists on board. That, Peter Struck said, gave politicians "a responsibility that it will be difficult for us to do justice to."
Wednesday's ruling came amid a long-running debate in Germany over whether the post-World War II constitution should be amended to allow the military's use for domestic security purposes.
Ahead of this summer's soccer World Cup in Germany, conservative Interior Minister Wolfgang Schaeuble repeatedly has advocated a change.
However, the center-left Social Democrats, who make up half the government, strongly oppose the idea, arguing that no change is necessary and the military is not suited to policing tasks. A change would require a two-thirds majority in both houses of parliament.
"The interior minister should give up on his efforts" to have the military deployed at the World Cup, Struck said.