Specialist planning judge Michael Rich gave his decision at London's high court in what is viewed as a vital test of the government's flagship policy to save the countryside by pushing forward development of brownfield sites.
The secretary of state must now reconsider his decision to scotch the proposals in the light of the judge's decision.
However, recognising the vital importance of the case for planning policies, Judge Rich granted the minister permission to take the case to the court of appeal.
Although Warton has long been targeted for 'consolidation and expansion' in local planning policies, the secretary of state for transport, local government and the regions refused planning consent for the scheme in March this year.
He refused to accept the recommendation of one of his own planning inspectors who, after a public inquiry, said consent should be granted because of the urgent need for more housing in the area.
Alderney Estates challenged the secretary of state's decision in a test case on the government's new policy to preserve green spaces by promoting development of more urbanised brownfield sites.
In his decision, the secretary of state cast doubt on whether there was any real need for the development.
He said there had been no adequate study carried out into the potential for converting existing buildings into homes and building on previously developed brownfield sites in the area.
Although he accepted there was a projected substantial shortfall in the number of homes needed in the Borough of Fylde over the next few years, he said part of that could also be made up by the emergence of 'windfall sites' not previously targeted for development.
And he concluded there was 'no justification or urgency for releasing this greenfield site for residential development.'
Overturning the secretary of state's decision, Judge Rich said it was based on a 'misinterpretation' of planning policy and that amounted to 'an error of law'.
He said there was simply no evidence to support the minister's view that enough brownfield sites could be found quickly enough to make good the substantial projected shortfall in housing land in the area.
The Fylde Borough Structure Plan contained a target of 5,200 new homes being built in the area by 2008 and the judge said there was evidence that target was far away from being met.
The secretary of state had given no adequate reason for disagreeing with his own inspector's view that there was no prospect of brownfield sites being released quickly enough to meet the target.
The inspector had said the development was 'necessary and urgent' to prevent a 'major undershoot' in housing land availability.
In his decision letter, the secretary of state had suggested that, so long as a single plot of brownfield land remained available for development, planning consent would not be granted for greenfield sites, said Judge Rich.
He had interpreted planning policy as meaning that planning consent should never be granted for a greenfield site unless a developer could prove that no brownfield site was available.
But the judge ruled that 'could not be the meaning' of the policy. The 'driving force' behind the decision had been a misinterpretation of planning policy and the secretary of state's decision was 'based on an error of law'.
The secretary of state had also 'exceeded his powers' by disagreeing with his inspector's findings of fact when there was no evidence on which he could do so, the judge added.
Alderney Estates had their appeal allowed and the secretary of state - who was ordered to pay the developers'£14,776 legal costs bills - will now have to reconsider his decision.
Granting leave to appeal, however, Judge Rich said: 'I think this matter should be tested in the court of appeal'.
Leave to appeal was granted on the sole issue of the correct interepretation of planning policy and the secretary of state agreed that, whatever the outcome, he will pay the appeal's legal costs.
STRAND NEWS SERVICE