The decision effectively revives thousands of criminal and corruption charges against public officials quashed under the controversial National Reconciliation Ordinance, including a money-laundering case pending against Mr Zardari in Swiss courts.
While Mr Zardari enjoys presidential immunity from prosecution, the judgment leaves at least 30 politicians, including close ally and Interior Minister Rehman Malik, Defence Minister Ahmed Mukhtar and thousands of bureaucrats vulnerable to jail terms.
However, the Supreme Court's late-night ruling is expected to pave the way for a legal challenge to Mr Zardari's eligibility to contest last year's presidential elections and his constitutional immunity.
That view was backed by former chief justice Saeeduz Zaman Siddiqqi, who said the constitution did not protect a president from cases brought in foreign countries. Pressure on the unpopular President is now mounting, with opposition parties calling for him to step down within minutes of the verdict.
Mr Zardari's chief spokesman, Farhatullah Babar, said yesterday: "There is no question of the President resigning". The party was prepared to "face any fallout" from the verdict, he added.
A 17-member bench of the Supreme Court found the controversial NRO introduced by former president Pervez Musharraf in 2007 was unconstitutional.
"(The) promulgation of the NRO seems to be against the national interest . . . thus it violates various provisions of the constitution," Chief Justice Iftikhar Mohammad Chaudhry said.
The petition to overrule the NRO has thrown up hugely damaging evidence against the President, including claims he amassed assets worth $US1.5 billion during his slain wife Benazir Bhutto's time as prime minister.
Documents provided by the National Accountability Bureau to the Supreme Court alleged Mr Zardari was facing charges of amassing assets beyond his means, including six cases of kickbacks and misuse of power, when General Musharraf introduced the NRO in October 2007.
A bureau official said about $US60m received in alleged illegal commissions had been deposited in Swiss bank accounts held by Mr Zardari and Bhutto.
The court has ordered the government to ask the Swiss courts immediately to revive their action against Mr Zardari and reinstate the Pakistan government as a damaged party in the case.
But the judgment was scathing of the bureau's officials, accusing them of a lack of impartiality and calling for their replacement. It ordered a special cell of the Supreme Court to monitor all resumed corruption and criminal cases.
Mr Zardari earned himself the unflattering moniker "Mr 10 Per Cent" during his wife's time in power, because of his rumoured demands for kickbacks, and spent 11 years in jail while facing trial on corruption and murder charges. He was released on bail in 2004.
The NRO amnesty, which covered 3478 cases ranging from murder, embezzlement and write-offs of bank loans worth millions of dollars, was part of a deal brokered by the US and Britain that allowed Bhutto to return from exile and seal a power-sharing deal with the military ruler. She was assassinated two months later, leaving Mr Zardari to lead her Pakistan People's Party to victory in national polls in February last year.
Meanwhile, the government is also under pressure from the US to expand its campaign to target Afghan Taliban leaders believed to be harbouring within its territory.
The New York Times reported yesterday that Pakistani military and intelligence services appeared to be retaliating with a harassment campaign against US diplomats, refusing to extend or approve visas for more than 100 officials. One diplomat said the harassment campaign had led to the forced suspension of several US aid programs.