"The law is unconstitutional as it infringes people's right to make their own decisions on sex and secrecy and freedom of their private life, violating the principle banning excessive enforcement under the constitution," said Seo Ki-seok, a Constitutional Court justice, reading an opinion representing five justices.
Seven members of the nine-judge panel deemed the law to be unconstitutional.
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Shares in Unidus, which makes latex products including condoms, soared to the 15 percent daily limit gain after the ruling.
Critics have said the law against adultery is outdated in a society where rapid modernization has frequently clashed with traditionally conservative values.
In 2008, the court had upheld the law, citing the society's legal perception that adultery is damaging to social order.
Several thousand spouses file criminal adultery complaints each year in South Korea, although it is rare for someone to be jailed. According to prosecutors, no one was put behind bars last year although 892 were indicted on adultery charges.