The law, passed a few weeks after Berlusconi took power last year, shields the holders of Italy's four highest political jobs - the prime minister, president and the speakers of the two houses of parliament.
Berlusconi could now be open to legal action in at least two cases, including allegations that he paid David Mills, his British former tax lawyer, $600,000 to give false evidence in two trials in the 1990s.
Under pressure
Berlusconi told reporters outside his Rome residence that he felt "invigorated'' after the ruling.
He said "we go ahead" and described any trial against him as a "farce".
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"It unfreezes a couple of very important prosecutions against Berlusconi and pretty much on a daily basis now he is going to be under pressure"
Eric Terzuolo, professor of geopolitics
University of Rome
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The court said in a statement that after two days of deliberations, it had found that the law violated the principle that all are equal before the law.
It rejected it on formal grounds because it had not been passed with the lengthy procedure that must be used for any law concerning the constitution.
The law is an amended version of earlier legislation that was rejected by the court in 2004.
Speaking to Al Jazeera from the Italian capital, Eric Terzuolo, a professor of geopolitics at the University of Rome, said: "In the immediate term it's going to make Berlusconi's life much more difficult.
"It unfreezes a couple of very important prosecutions against Berlusconi and pretty much on a daily basis now he is going to be under pressure.
"He's going to have to respond to the official acts of the magistrates, but also press leaks, comments etc. It's going to keep him very tied up.
"What Berlusconi's people will probably try to do is to go to another law similar to the one that was just rejected by the constitutional court, taking into account the objections of the constitutional court, but it's a rather long process."
'Politically motivated'
Berlusconi has had a history of legal troubles stemming from his private interests, but his supporters say the law was necessary to spare Italy's senior office-holders from politically motivated persecution.
Critics said the law had been tailor-made to help Berlusconi.
Paolo Bonaiuti, Berlusconi's spokesman, said in a statement on Wednesday that the ruling had been "politically motivated".
"This is a politically-motivated sentence but Prime Minister Silvio Berlusconi, the government and the majority will continue to govern, as they have done since April 2008, in the way that Italians requested with their votes," he said.
The prime minsiter's allies had said they would stand behind him regardless of the court's decision.