The decision means Joe Natuman was no longer an MP and a by-election will be held on the island of Tanna.
Natuman had appealed against the decision by the Speaker, Esmon Saimon, to declare his seat vacant.
Mr Saimon's decision followed Natuman's conviction for perverting the course of justice, for which he was given a two-year suspended sentence.
But the court has decided that a suspended sentence is still a prison sentence, so under the constitution, Natuman's seat had to be declared vacant.
