The council claimed that the department breached equality laws by cutting its budget by £10m in 2010, which disproportionally affected the county's disabled children and those in areas of deprivation.
The funding was allocated for building new facilities and upgrading existing substandard accommodation, including making buildings accessible to disabled children and suitable for the provision of daycare.
Essex County Council said that the cut to funding affected a large number of projects and that it had to use money from other budgets to compensate.
High Court judge Mr Justice Mitting found that education secretary Mr Gove had not met his legal obligations under equality laws, and ruled the education secretary's decision was unlawful and must therefore be reviewed.
Councillor Peter Martin, leader of Essex County Council, said of the ruling, 'This was an unusual step for the council to take but we believe strongly that the rights of the county's children to have access to these facilities is worth campaigning for.
He added, 'While we realise that this is a time of austerity and budgets are tight, we believe it is important to protect those most vulnerable in society and ensure they are given the resources and support they need.
'We hope the Department for Education listens to this ruling and makes the necessary adjustments to our funding to ensure Essex parents and children receive the best possible early years provision.'
A Department for Education spokesperson said, 'We welcome that the judge did not call into question the decision to reduce nursery funding. We are pleased that on two of the substantive grounds he concluded that the decision of the Secretary of State was not irrational, and dismissed the challenge that the Department should have consulted, including with Essex County Council.'
Ben Thomas, Unison national officer, said, 'It seems to be typical Government policy to ride roughshod over equality duties. In this case, the Government has failed to take its responsibilities to disabled children seriously. For the sake of these young people in Essex, we hope that the Department for Education reflects on this judgement and changes its damaging approach.'
He added, 'Investment in early years infrastructure is critical to boosting standards and to giving young people the best chance in life. There can be no doubt that these short-sighted cuts to nursery places will mean long-term damage to young people's futures.'
The Association of Directors of Children's Services and the Local Government Association were also asked for a statement, but both said they were unable to comment in the case of an individual local authority.
WHAT A LEGAL EXPERT SAYS ABOUT THE ESSEX COUNTY COUNCIL RULING
Alison Millar, a partner of Leigh Day & Co solicitors, in the City of London, which specialises in human rights law, said that this is one of a number of cases arising from Government cuts. However, she said it was unusual for a local authority to challenge the Government.
Leigh Day & Co acted on behalf of a group of parents to file a lawsuit with the High Court in London against Hampshire County Council and Hammersmith and Fulham Council over cuts to Sure Start children's centres last June.
The solicitors claimed that both councils' consultations had been unlawful and that plans to cut children's centres breached aspects of the Childcare Act 2006.
Of the Essex County Council ruling, Ms Millar said,'The Equality Act 2010 requires public authorities in their decision making to comply with the Public Sector Equality Duty (PSED), section 149 of the Act.
'There have been quite a few cases on the PSED and what giving 'due regard' means. It is more than simply considering the equality needs. In the Essex case, the High Court judge found that the Secretary of State had not fulfilled his race and disability equality duties under the previous legislation to the Equality Act when deciding to reduce Essex's 'carry over' funding. The argument was that the reduced funding for schools and nurseries would have an impact on people with the protected characteristics, and the Secretary of State had failed properly to evaluate this impact and decide whether it was sufficiently justified by countervailing factors before deciding on the funding cut.'
The human rights lawyer explained that the case will now go back to the Department for Education which will look again at the decision and address the issues raised by the court. The Department will also have to prove that it had due regard for the Equality Act when it made its decision to cut funding.
Ms Millar said that the ruling will delay the Government in making the cuts and it has also generated a lot of adverse publicity for the department.
She added, 'The Essex case is quite novel in that it was brought by the council against the DfE rather than by an affected individual.
'The ruling could lead other local authorities to follow in Essex County Council's footsteps.'
