A British court ruled on Thursday that the United Kingdom government acted unlawfully in selling weapons to Saudi Arabia that were used in the Yemen war, though it did not order a halt to the exports.

The Court of Appeal ruled in favour of anti-weapons campaigners, who argued that the sales should not have been allowed because there was a clear risk the weapons might be used in violation of international humanitarian law.

Campaign Against Arms Trade argued that British bombs and fighter jets are fuelling violence in Yemen, where a Saudi-led war against Houthi rebels has raged since 2015.

Britain is the second-biggest supplier of weapons to Saudi Arabia, after the United States.

Three judges said the British government's decision-making "was wrong in law in one significant respect" that they had "made no attempt" to find out whether the Saudi-led coalition had breached international law.

The judges said Britain should have investigated "whether there was an historic pattern of breaches of international humanitarian law on the part of the (Saudi-led) coalition, and Saudi Arabia in particular."

But the court's ruling does not mean existing arms-sales licenses must be suspended, only that the government "must reconsider the matter".

Andrew Smith of Campaign Against Arms Trade said: "We welcome this verdict but it should never have taken a court case brought by campaigners to force the government to follow its own rules."

The British government plans to appeal the ruling, but while the case is ongoing, Trade Secretary Liam Fox said it would suspend the issuance of new licenses for arms sales to Saudi Arabia ─ that might be used in the Gulf kingdom's bombing campaign in Yemen ─ would be granted.

"We disagree with the judgement and will seek permission to appeal," Fox said, adding: "While we do this, we will not grant any new licenses to Saudi Arabia and its coalition partners which might be used in the conflict in Yemen."

"We are carefully considering the implications of the judgement for decision making," he said after the ruling.

Shares in Britain's BAE Systems defence and aerospace giants lost almost 3 per cent of their value within an hour of the government's announcement.

The Gulf kingdom faces wide international criticism for indiscriminate airstrikes that have struck markets, hospitals and other civilian targets.