Sydney city strip clubs and live music venues will be exempt from NSW lockout laws, following a landmark court decision this week.

The Supreme Court found that the secretary of the Justice Department lacked the authority to subject a city venue to the 1.30am lockout and 3am cease-service laws, The Daily Telegraph reports .

The ruling follows a legal challenge, brought by the Smoking Panda Bar. Going forward it, along with seven other bars in Sydney’s CBD, will be operating according to pre-lockout regulations.

The laws introduced in 2014 by former NSW Premier Barry O’Farrell in a bid to quash alcohol-fuelled violence in the city.

The Smoking Panda Bar was previously exempt from the laws owing to its presence in the Coronation Hotel – a “tourism accommodation establishment” area.

Tourism and accommodation areas are exempt from the NSW lockout laws.

The Smoking Panda Bar's exemption was cancelled after an investigation by Liquor and Gaming NSW found some bar patrons were not hotel guests.

During the Supreme Court hearing, Justice Natalie Adams declared lockout legislation clauses were “not a proper exercise of the regulation-making power conferred upon the governor”.

Judge Adams said the "tourism accommodation establishment" expedition had not been defined properly.

"Nothing in the correspondence indicates that there was any condition stipulated by either police or the OLGR that the bar could only permissibly service residents of the hotel’s accommodation facilities," she said.