The government discriminated against disabled people when it failed to exempt some unpaid carers from its cap on benefits, the High Court has ruled.
It comes after two adult carers challenged the way the benefits cap applied to people who care for their disabled adult children or relatives.
Carers can claim about £60 a week for caring for relatives - but claims can be included in the £500 benefit cap.
This indirectly discriminated against disabled people, the judge said.
A Department for Work and Pensions spokesman said the government "values the important role of carers" and was "considering the judgment and will respond in due course".
He said 98% of carers were unaffected by the benefits cap, which was introduced across England, Scotland and Wales in 2013 and limits how much any one household can receive in state benefits.
To qualify for the Carer's Allowance, carers must provide full-time care - more than 35 hours a week - to a severely disabled person who receives Disability Living Allowance (DLA).
What is the benefits cap?
Under the policy, couples with or without children, or lone parents with a child, can claim up to £500 a week in benefits
Single adults can claim no more than £350 a week
In comparison, the average UK salary of £27,000 works out at about £400 take-home pay a week
Q&A: The benefits cap and you
People who care for children or spouses have their Carer's Allowance exempt from the overall benefit cap.
However, people who provide care for another adult - such as a parent or grandparent, or a disabled son or daughter over the age of 18 - have their benefit included in the £500-a-week cap.
It means some have had their housing benefit cut, leaving them at risk of losing their homes.
Some 1,400 carers are thought to be affected.
The case was brought by two adult carers from London - Ashley Hurley and Lee Palmer - who both care for a grandparent.
They had earlier told the court of the "devastating impact" the cap had on them.
Ashley Hurley, 26, cares for her severely disabled grandmother Mary Jarrett, 72, in Peckham, south-east London.
Ms Jarrett, whose lung cancer is in remission, suffers from conditions including emphysema and arthritis and has difficulty breathing and poor mobility.
Ms Hurley receives £62 a week but says she cannot afford her own house because of the cap.
She said: "Because of the cap I can't afford my own place. Me and the kids all sleep in a bed in one room. It is a nightmare."
Following the ruling, she said: "I feel so great. It means I should still be able to care for my nan and be able to have my own place at the same time."
The Judge, Mr Justice Collins, said the failure to exempt people who act as carers for relatives was "not making any savings for public funds".
He said he had urged Iain Duncan Smith, secretary of state for work and pensions, to give "serious reconsideration" to whether it is necessary to retain the benefits cap for people who do at least 35 hours a week.
Mr Justice Collins said consideration should be given to exempting "at least individual family carers".
"These are very few and the cost to public funds if the cap is to be maintained is likely to outweigh to a significant extent the cost of granting the exemption," he added.
Evidence presented during the hearing highlighted the "huge contribution to society" made by unpaid carers, who are estimated to have saved about £119bn from public funds every year.
'Not skivers - they are strivers'
However, the hearing was told how people "had to cease caring" because of the impact of the cap.
Rebekah Carrier, representing the families, urged the government to take "urgent action" following the ruling.
She said: "My clients have been hit by the benefit cap because they are disabled or they provide essential care to their disabled relatives.
"They are not skivers - they are strivers."
An exemption to the cap for people in similar positions "must be drafted and laid before parliament as soon as possible", she added.
During the hearing, Clive Sheldon QC, representing the secretary of state, told the judge that Mr Duncan Smith "does not accept that he acted unlawfully".
Mr Sheldon said the cap had the "clear and reasonable policy aims of making the benefit system fairer for taxpayers by increasing incentives to work".
Courtesy of BBC News