Mr Al Halbousi has been in a months-long legal battle with Sunni legislator Laith Al Dulaimi who accused him of forging his signature on a resignation letter.
The court also removed Mr Al Dulaimi as an MP.
“The ruling comes into effect from issuing date,” it said. “The ruling is non-appealable and binding on all authorities.”
During a parliament session on Tuesday Mr Al Halbousi, who also comes from Iraq's Sunni community, said he was surprised by the “strange” decision by the court.
He said he would seek clarifications on the ruling.
“There are people who are seeking to destabilise the country and to fragment the political and society components,” he told MPs.
“We are surprised by the issuance of these decisions and we are surprised by the lack of respect for the constitution.”
Before ending the session and leaving the hall, he added: “We will resort to the procedures that uphold constitutional rights.”
In a statement, the Taqadum Party called the ruling a “flagrant violation to the constitution and a clear political targeting”.
The party's ministers of planning, industry and culture will submit their resignation as will the MPs who sit on parliamentary committees, the statement added. The MPs will also boycott parliamentary sessions.
In addition, the party will boycott political meetings with other parties, it said.
Baghdad-based legal expert Ali Al Tamimi told The National the Supreme Federal Court would refer the forgery case to the investigation court.
Mr Al Tamimi added that MPs will have to elect a new speaker with an absolute majority.
Mr Al Halbousi's rival Sunni politician Mishaan Al Jabouri said suspending Mr Halbousi does not mean the “end of his threat” to the state and the political system “as he has arms in the government and parliament”.
Mr Al Jabouri demanded that Mr Halbousi be barred from travelling abroad and have his money confiscated.
The ruling is likely to shake Iraq's fragile political landscape and alliances between Sunnis, Shiites and Kurds ahead of next month's provincial elections.
Mr Al Halbousi, a former governor of Anbar province, was elected for a second term as the country's parliament speaker in January 2022.
He established the Progress Party, or Taqadum in Arabic, which won the majority of Sunni votes in the October 2021 national elections, taking 37 seats in the 329-seat legislative body.
In recent years, he emerged as a prominent Sunni political leader with most of his support coming from Anbar, his home province, west of Iraq.
He forged alliances with warring Shiite rivals as well as the Kurds ahead of the formation of Prime Minister Mohammed Shia Al Sudani's government in October last year.
During his rapid rise to power, Mr Al Halbousi made political adversaries among seasoned Sunni politicians, including Mr Al Jabouri.
They have accused him of monopolising power and sidelining rivals in the Sunni community.
Last month, Mr Al Jabouri compared Mr Al Halbousi to Saddam Hussein, the former Iraqi dictator whose regime was toppled in the US-led invasion in 2003.
He also accused him of having ties with unnamed countries in the region and trying to establish Anbar as a semi-autonomous Sunni region.
After 2003, the US introduced a new political system in the country based on national elections to be held every four years to select a parliament, from which the government is formed.
Mr Al Halbousi has for years been the highest Sunni official in Iraq. Under the country’s sectarian power-sharing system, the parliament speaker is always Sunni, the prime minister Shiite and the president Kurdish.
Other government posts are divided between the country’s political parties based on their religious and ethnic background.
Critics say the system promotes widespread corruption, mismanagement and neglect of public services in Iraq.
The system also promotes loyalty to political parties rather than the state, political scientists say.
The last national election was in October 2021. The early vote was in response to one of the core demands of a nationwide, pro-reform protest movement that began in 2019 in central and southern parts of the country.
They were the fifth parliamentary vote for a full-term government since the 2003.
It took political parties a year to form the current government due bitter rivalry among political elites, mainly among the country’s Shiite majority, which led to bloodshed.