The court said Parhat could petition a federal judge to seek his immediate release following a recent US Supreme Court decision to give that right to all detainees held at the military prison in Guantanamo Bay.
The ruling is the first by the court in Washington that gives a detainee a chance of release.
Parhat, who was detained in Afghanistan, is one of several Uighurs still held at the prison camp.
In 2006, the US allowed five Chinese Muslims released from Guantanamo to seek asylum in Albania but Washington has struggled to find states willing to accept others.
Parhat was not involved in violence against the US and the government concedes there is no evidence he ever intended to.
However, the US has argued that Parhat was trained by a group called the East Turkestan Islamic Movement and that it has links to al-Qaeda.
Beijing blames the separatist group for hundreds of attacks, while human rights groups say the Chinese government represses religious freedom and uses anti-terrorism laws to crack down on legitimate protests.
Military tribunals
There are about 270 detainees remaining at the US military base at Guantanamo in Cuba, which was set up in January 2002 to hold some of the people captured by the US in its "war on terror".
Most of the prisoners have been held for years without being charged and many have complained of abuse.
More than 190 prisoners have filed challenges with the court in Washington to rulings by military tribunals that are enemy combatants.
The US has designated al-Qaeda and "war on terror" suspects as unlawful enemy combatants, not prisoners of war held under the Geneva Conventions.
The Bush administration set up military tribunals at Guantanamo Bay to try these suspects but they have also been widely condemned as unfair by rights groups.