The Fourth US Circuit Court of Appeals in the state capital Richmond said the ban violated the US Constitution's guarantee of equal protection under the law by infringing on the right to wed.
"The choice of whether and whom to marry is an intensely personal decision that alters the course of an individual's life," the court said.
"Denying same-sex couples this choice prohibits them from participating fully in our society, which is precisely the type of segregation that the Fourteenth Amendment cannot countenance."
Virginia Governor Terry McAuliffe, a Democrat, said he was "overjoyed" by the ruling -- raising hopes that state officials might soon issue marriage licenses to gay and lesbian couples.
"This is a historic ruling ... and its effect will affirm once again that Virginia is a state that is open and welcoming to all," he said in a statement.
Virginia effectively banned same-sex marriage when a 2006 amendment to its state constitution -- endorsed by 57 percent of its voters in a referendum -- defined marriage strictly as a union between a man and a woman.
Prohibitions on same-sex marriage have fallen in several states since June 2013 when the US Supreme Court ruled that wedded gay couples were entitled to the same rights and benefits as their straight counterparts.
Same-sex marriages are legal in 19 other states plus the District of Columbia -- but they remain prohibited in about 30 others, notably in the more conservative South.
"The Fourth Circuit has affirmed that equality is not just a California value, or a New York value -? it's a fundamental American value," said Chad Griffin, president of the Human Rights Campaign, a leading American gay rights organization.
"No state should have the right to enforce this type of discriminatory amendment that singles out thousands of loving couples for unfair treatment, simply because they are gay or lesbian," he said in a statement.
But the Family Research Council, a socially conservative group, faulted the court for joining a "judicial stampede" to redefine marriage in defiance of "natural law."
"While the Left continues to use the federal courts as the means to fulfill their radical social agenda, the courts will not have the final say," said Peter Sprigg, its senior fellow for policy studies.
"They cannot change natural law and the fact that society needs children, and children need a mom and a dad," he added.
- Ruling could have reach -
The impact of Monday's ruling could stretch well beyond Virginia, as the jurisdiction of the Fourth US Circuit Court of Appeals includes three other states -- North Carolina, South Carolina and West Virginia -- that have also banned same-sex marriage.
"It's only a matter of time," lawyer Beth Littrell of Lambda Legal, a civil rights group challenging West Virginia's ban, was quoted as saying in the state's Charleston Gazette newspaper.
The Human Rights Campaign cautioned that the defendants in the Virginia case still had the option of referring the matter to the US Supreme Court.
Just last week, another US appeals court struck down Oklahoma's same-sex marriage ban, while Utah has signaled it will appeal a similar outcome last month to the Supreme Court.